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THE 

FEDERAL  RESERVE  ACT 

OF  1913 


HISTORY  AND   DIGEST 

by 
V.  GILMORE  IDEN 


PUBLISHED   BY 

THE  NATIONAL  BANK  NEWS 
PHILADELPHIA 


gb6 -^ 


'\'^ 


Copyright,  1914 

by 
Cornelius  Baktr 


History  of  Federal  Reserve  Act 


History 

N  MONDAY,  October  21,  1907,  the  Na- 
tional Bank  of  Commerce  of  New  York 
City  announced  its  refusal  to  clear  for  the 
Knickerbocker  Trust  Company  of  the  same 
city.  The  trust  company  had  deposits  amounting 
to  $62,000,000.  The  next  day,  following  a  run  of 
three  hours,  the  Knickerbocker  Trust  Company 
paid  out  $8,000,000  and  then  suspended. 

One  immediate  result  was  that  banks,  acting 
independently,  held  on  tight  to  the  cash  they  had  in 
their  vaults,  and  money  went  to  a  premium.  Ac- 
cording to  the  experts  who  investigated  the  situation, 
this  panic  was  purely  a  bankers'  panic  and  due 
entirely  to  our  system  of  banking,  which  bases  the 
protection  of  the  financial  solidity  of  the  country 
upon  the  individual  reserves  of  banks.  In  the  case 
of  a  stress,  such  as  in  1907,  the  banks  fail  to  act  as 
a  whole,  their  first  consideration  being  the  protec- 
tion of  their  own  reserves. 

' '  -  '  '^  ■--  -  ' 

-  .  PAGES 

KJ  O  \j  xJ  ijf  -^ 


History  of  Federal  Reserve  Act 


The  conditions  surrounding  previous  panics 
were  entirely  different.  In  1873  the  currency  was 
inconvertible  and  depreciated,  and  the  banks  could 
not  increase  their  available  cash  reserve  by  the 
acquisition  of  gold.  About  twenty  years  later  silver 
purchases  weakened  the  monetary  structure  and 
caused  distrust  of  American  securities  at  home  and 
abroad.  The  panic  of  1907  was  not  preceded  by 
any  legislative  disturbances  or  monetary  unsound- 
ness. 

This  panic  was  preceded  by  a  season  of  great- 
est prosperity.  It  was  followed  by  a  widespread 
demand  for  currency  reform.  What  economic  stu- 
dents had  been  urging  for  a  long  time  at  last,  as 
a  result  of  this  panic,  culminated  in  the  appoint- 
ment of  a  National  Monetary  Commission  by  Con- 
gress and  ultimately  in  the  Federal  Reserve  Act  of 
1913.  A  study  of  monetary  conditions  was  author- 
ized by  a  Republican  administration,  and  remedial 
legislation  was  enacted  by  a  Democratic  adminis- 
tration. 

PAGE  6 


History  of  Federal  Reserve  Act 


The  immediate  result  of  this  panic  was  the 
enactment  of  a  temporary  measure  known  as  the 
Aldrich-Vreeland  emergency  currency  act,  which 
was  to  expire  by  limitation  on  June  30,  1914.  This 
act  permitted  the  incorporation  of  national  banks 
into  associations  similar  to  clearing  houses  and  the 
issuance  of  "emergency"  currency  in  times  of  stress 
upon  certain  securities  approved  by  the  authority 
of  these  associations  and  the  govermnent,  which  se- 
curities could  be  other  than  government  bonds. 

It  was  some  time  before  the  banks  would  or- 
ganize under  the  authority  of  this  act,  the  claim 
being  made  that  the  law  would  not  work.  Finally 
the  Secretary  of  the  Treasury  during  the  Taft  ad- 
ministration persuaded  the  banks  in  a  number  of 
the  cities  to  organize.  This,  it  was  believed,  was 
merely  for  the  purpose  of  a  pretense,  as  no  one  ever 
contemplated  that  the  terms  of  the  temporary  act 
would  be  put  into  practice,  and  experience  since  has 
proven  the  truth  of  this  prediction. 

PAGE  7 


History  of  Federal  Reserve  Act 


The  National  Monetary  Commission  was  com- 
posed of  Nelson  W.  Aldrich,  of  Rhode  Island, 
chairman;  Edward  B.  Vreeland,  of  New  York,  vice 
chairman;  Julius  C.  Burrows,  of  Michigan;  Eugene 
Hale,  of  Maine;  H.  M.  Teller,  of  Colorado;  H.  D. 
Money,  of  Mississippi;  Theodore  E.  Burton,  of 
Ohio;  Jas.  P.  Taliaferro,  of  Florida;  Boise  Pen- 
rose, of  Pennsylvania;  John  W.  Weeks,  of  Massa- 
chusetts; Robert  W.  Bonynge,  of  Colorado;  L.  P. 
Padgett,  of  Tennessee;  Geo.  F.  Burgess,  of  Texas; 
A.  P.  Pujo,  of  Louisiana;  Geo.  W.  Prince,  of  Illi- 
nois, and  Jas.  McLachlan,  of  California.  A.  Piatt 
Andrew,  of  Massachusetts,  later  Assistant  Secretary 
of  the  Treasury  during  the  Taft  administration, 
was  employed  as  an  assistant  to  the  commission  and 
did  most  of  the  formulative  work  of  that  body. 

The  commission  conducted  investigations  and 
held  hearings  in  this  country  and  abroad.  The 
greater  part  of  the  energies  of  the  commission,  how- 
ever, were  expended  in  collecting  an  adequate  work- 
ing library.    Volumes  on  the  various  banking  sys- 

PAGB8 


History  of  Federal  Reserve  Act 


terns  of  the  world  were  prepared  by  the  leading 
economic  students  of  the  countries  in  question,  and 
all  were  published  by  the  commission.  Because  of 
the  large  monetary  outlay  made  in  this  direction  the 
Democrats  criticized  the  commission  very  severely. 

The  National  Monetary  Commission,  upon  in- 
vestigation, discovered  the  principal  defects  in  our 
banking  system  to  be  in  that:  ^   Cit  %^ 

"1 :  We  have  no  provision  for  the  concentra- 
tion of  the  cash  reserves  of  the  banks  and  for  their 
mobilization  and  use  wherever  needed  in  times  of 
trouble.  Experience  has  shown  that  the  scattered 
cash  reserves  of  our  banks  are  inadequate  for  pur- 
poses of  assistance  or  defense  at  such  times. 

"2.  Antiquated  Federal  and  State  laws  re- 
strict the  use  of  bank  reserves  and  prohibit  the  lend- 
ing power  of  banks  at  times  when,  in  the  presence 
of  unusual  demands,  reserves  should  be  freely  used 
and  credit  liberally  extended  to  all  deserving  cus- 
tomers. 

PAGE  9 


History  of  Federal  Reserve  Act 


"3.  Our  banks  also  lack  adequate  means 
available  for  use  at  any  time  to  replenish  their  re- 
serves or  increase  their  loaning  powers  when  neces- 
sary to  meet  normal  or  unusual  demands." 

There  were  seventeen  of  these  "principal"  de- 
fects in  all,  but  this  number  will  suffice  to  indicate 
the  remedy  which  would  naturally  be  proposed.  In 
company  with  Dr.  Andrew,  Senator  Aldrich  finally 
drafted  a  plan  to  remedy  the  conditions.  It  was 
strictly  Senator  Aldrich's  plan,  but  the  Monetary 
Commission  gave  it  the  stamp  of  approval.  As 
later  appearing  in  the  report  of  the  commission,  the 
plan  was  as  follows: 

"It  is  proposed  to  incorporate  the  National 
Reserve  Association  of  the  United  States  with  an 
authorized  capital  equal  to  20  per  cent  of  the  capi- 
tal of  all  subscribing  banks,  of  which  one-half 
shall  be  paid  in  and  the  remainder  shall  become  a 
liability,  subject  to  call  *  *  *  *.  It  is  also 
provided  that  before  the  reserve  association  can 
commence  business,  $100,000,000  of  capital  must 

•  ■  ■ 

PAGE  10 


History  of  Federal  Reserve  Act 


be  paid  in  cash.  All  State  banks  and  trust  com- 
panies conforming  to  the  provisions  of  the  bill  with 
reference  to  capitalization  and  reserves  and  all  Na- 
tional banks  are  entitled  to  subscribe  for  stock  and 
to  become  members  of  the  association.  Shares  in 
the  association  are  not  transferable  and  can  not  be 
owned  otherwise  than  by  a  subscribing  bank  or  in 
any  other  than  the  proportion  named. 

"It  is  proposed  to  group  into  local  associations 
all  subscribing  banks  located  in  contiguous  terri- 
tory. The  local  associations  are  to  be  organized 
into  district  associations,  in  each  of  which  shall  be 
located  a  branch  of  the  National  Reserve  Associa- 
tion; and  the  district  associations,  which  shall  be  so 
arranged  as  to  include  all  the  territory  of  the  United 
States,  are  combined  to  form  the  National  Reserve 
Association  of  the  United  States. 

"One  of  the  principal  functions  of  the  local 
associations  is  to  guarantee,  upon  application,  the 
commercial  paper  of  individual  banks  which  may  be 
offered  to  the  branches  for  rediscount     *     *     *     *^ 

PAGE  II 


History  of  Federal  Reserve  Act 


The  local  association  may,  and  in  most  cases  would, 
require  from  the  bank  making  the  application  satis- 
factory security  for  the  guarantee.  Local  associa- 
tions are  authorized  in  serious  emergencies  to  guar- 
antee the  direct  obligations  of  subscribing  banks 
with  adequate  security  *  *  *  *.  a  local  as- 
sociation may  decline  to  give  the  guarantees  pro- 
vided for  under  either  of  these  sections.  Local  as- 
sociations may  also,  by  vote  of  three-fourths  of  their 
board  of  directors  and  the  approval  of  the  National 
Reserve  Association,  assume  and  exercise  the  powers 
and  functions  of  clearing  houses.  They  are  re- 
quired also  to  perform  such  services  in  facilitating 
domestic  exchanges  as,  in  the  opinion  of  the  Na- 
tional Reserve  Association,  the  public  interests  may 
require." 

Speaking  elsewhere  in  the  report,  the  proposed 
association  was  described  as  follows : 

"It  is  not  a  bank,  but  a  co-operative  union  of 
all  the  banks  of  the  country,  with  very  limited  and 
clearly  defined  functions.    First,  it  holds  a  portion 

PAGE  12 


History  of  Federal  Reserve  Act 


of  the  cash  reserves  of  the  banks  of  the  United 
States,  with  the  provision  for  their  use  only  for 
specific  purposes ;  second,  it  is  granted  the  power  to 
issue  circulating  notes  under  strict  governmental 
regulations;  third,  through  the  maintenance  of  its 
own  reserves  and  the  character  and  extent  of  its 
resources,  it  is  required  to  sustain  the  credit  of  the 
banks  and  of  the  country  imder  all  circumstances. 
All  of  its  operations  are  confined  to,  or  incidental 
to  these  purposes,  the  only  exception  being  the  trans- 
action of  its  business  as  the  fiscal  agent  of  the  gov- 
ernment of  the  United  States." 

When  the  Democrats  gained  control  of  the 
House  of  Representatives  in  the  political  elections 
of  1910,  the  offices  being  filled  in  1911,  they  forced 
the  National  Monetary  Commission  to  make  its  re- 
port and  wind  up  its  work.  In  making  this  report, 
Senator  Aldrich  outlined  a  plan  for  establishing  a 
National  Reserve  Association,  with  regional  insti- 
tutions as  indicated  above.  Immediately  the  Demo- 
crats attacked  this  as  being  typically  republican 

PAGE  13 


History  of  Federal  Reserve  Act 


and  a  plan  that  would  tend  further  to  concentrate 
the  control  of  money  in  Wall  Street.  Many  sub- 
stitute Democratic  plans  for  monetary  reform  were 
offered  by  the  leaders  of  the  party. 

Beyond  occasional  discussion  of  the  subject, 
the  banking  question  was  not  again  brought  to  the 
front  until  the  Democratic  platform  of  1912  was 
adopted  in  Baltimore.  Concerning  banking  legis- 
lation, this  platform  said: 

"We  oppose  the  so-called  Aldrich  bill,  of  the 
establishment  of  a  Central  Bank,  and  we  believe  the 
people  of  the  country  will  be  largely  freed  from 
panics  and  consequent  imemployment  and  business 
depression  by  such  a  systematic  revision  of  our 
banking  laws  as  will  render  temporary  relief  in  lo- 
calities where  such  relief  is  needed,  with  protection 
from  control  or  domination  by  what  is  known  as  the 
Money  Trust. 

"Banks  exist  for  the  accommodation  of  the 
public  and  not  for  the  control  of  business.      All 

PAGE  J4 


V  / 

History  of  Federal  Reserve  Act 

legislation  on  the  subject  of  banking  and  currency 
should  have  for  its  purpose  the  securing  of  these 
accommodations  on  terms  of  absolute  security  to  the 
public  and  of  complete  protection  from  the  misuse 
of  the  power  that  wealth  gives  to  those  who  possess 
it. 

"We  condemn  the  present  methods  of  deposit- 
ing Government  funds  in  a  few  favored  banks, 
largely  situated  in  or  controlled  by  Wall  Street,  in 
return  for  political  favors,  and  we  pledge  our  party 
to  provide  by  law  for  their  deposit  by  competitive 
bidding  in  the  banking  institutions  of  the  country. 
National  or  State,  without  discrimination  as  to  lo- 
cality, upon  approved  securities,  and  subject  to  call 
by  the  government." 

While  Chairman  Pujo,  of  the  House  Banking 
and  Currency  Committee,  was,  with  the  aid  of  At- 
torney Samuel  Untermyer,  of  New  York,  attempting 
to  unearth  sensational  data  relative  to  the  existence 
of  a  Money  Trust,  Carter  Glass,  of  Virginia,  with 
his  sub-committee  from  the  same  committee,  was 

PAGE  15 


History  of  Federal  Reserve  Act 


giving  serious  consideration  to  real  banking  legisla- 
tion. Because  of  the  bizarre  nature  of  the  Money 
Trust  probe,  but  little  was  said  of  the  Glass  Com- 
mittee, and  thereby  the  country  generally  heard  very 
little  about  the  plans  for  constructive  legislation. 

Mr.  Glass  called  a  notable  array  of  witnesses, 
including  bankers  from  the  most  important  financial 
centers  and  monetary  experts.  The  short  session  of 
Congress  came  to  an  end  on  March  4,  1913,  and  the 
extra  session  was  called  April  7  of  the  same  year  by 
President  Wilson  to  consider  tariff  revision. 

Members  of  Congress  are  not  students  of 
finance,  but  rather  students  of  politics.  That  is 
why  it  is  so  difficult  for  a  scholar  of  finance  to 
fathom  out  the  reasons  for  the  interesting  fight  made 
over  the  currency  bill  in  the  first  and  second  ses- 
sions of  the  63rd  Congress.  For  the  same  reason 
those  students  of  politics  who  did  all  the  fighting 
were  unable  to  fully  understand  the  financial  prob- 
lem which  they  were  supposed  to  be  remedying  by 
legislation. 

PAGE  i6 


History  of  Federal  Reserve  Act 


In  the  spring  of  1913  the  newspapers  began  to 
publish  reports  that  Carter  Glass,  the  ranking  Dem- 
ocrat on  the  House  Banking  and  Currency  Com- 
mittee, had  drafted  a  currency  bill  to  be  proposed  to 
the  President  and  Congress.  As  a  matter  of  fact, 
there  was  some  doubt  for  a  time  whether  Mr.  Glass 
would  receive  the  chairmanship  of  that  committee. 
Finally  precedent  prevailed  and  Mr.  Glass  was 
named  chairman.  H.  Parker  Willis,  an  economic 
student,  it  was  later  discovered,  had  drafted  a  cur- 
rency bill  for  Mr.  Glass.  Dr.  Willis  was  then  in  the 
employ  of  Mr.  Glass  as  a  monetary  expert.  The 
bill  which  the  newspapers  attributed  to  Mr.  Glass 
was  really  the  bill  drafted  by  Dr.  Willis.  Follow- 
ing the  elections  of  1912,  Mr.  Glass  and  Dr.  Willis 
had  frequently  gone  to  Trenton,  N.  J.,  for  confer- 
ences with  President-elect  Wilson  on  this  matter.  It 
was  presumed  that  they  were,  consequently,  work- 
ing in  the  interest  of  the  new  Democratic  executive. 

Only  one  thing  stood  in  the  way.  That  was 
the  tariff  legislation,  which  was  a  party  promise. 


PAGE  IT 


History  of  Federal  Reserve  Act 


So  until  this  was  assured,  the  President  withheld  his 
consent  to  make  a  fight  for  currency  legislation. 
Consequently  it  was  not  until  August  29  that  the 
currency  bill  was  first  introduced.  This  bill  bore 
the  name  of  the  Glass-Owen  bill,  because  in  its  final 
shape  it  was  the  result  of  conferences  between  Mr. 
Glass,  the  President,  Secretary  of  the  Treasury  Mc- 
Adoo,  Secretary  of  State  Bryan  and  Senator  Owen, 
chairman  of  the  newly  organized  Banking  and  Cur- 
rency Committee  of  the  Senate. 

ijnasmuch  as  the  bill  was  the  joint  product  of 
the  leaders  of  both  houses  and  the  recognized  re- 
sponsible persons  in  the  Democratic  party,  it  was  to 
be  expected  that  it  would  be  easy  to  get  it  through 
Congress.  Such  was  not  the  case,  however.  Repre- 
sentative Henry,  of  Texas,  organized  an  insurgent 
move  against  the  bill.  Mr.  Henry,  it  was  reported, 
had  a  quarrel  with  the  White  House  and  hoped  in 
this  manner  to  square  matters.  He  obtained  the 
support  of  Representative  Ragsdale,  of  South  Caro- 
lina, and  Representative  Wingo,  of  Arkansas,  both 

PAGE  i8 


History  of  Federal  Reserve  Act 


members  of  the  Banking  and  Currency  Committee 
and  both  new  members  in  Congress.  The  Texas 
Congressman  based  his  fight  upon  the  demand  for 
so-called  "agricultural''  currency.  He  said  that,  in- 
asmuch as  the  proposed  bill  provided  for  asset  cur- 
rency, it  should  permit  a  farmer  to  store  his  agricul- 
tural products  in  warehouses  and  receive  loans  on 
the  warehouse  receipts. 

Only  the  Democratic  members  of  the  House 
committee  met  to  consider  the  bill  introduced  by  Mr. 
Glass,  but  the  first  meeting  resulted  in  almost  a 
riot.  It  was  impossible  to  accomplish  anything. 
Several  meetings  were  wasted  in  a  fruitless  dis- 
cussion of  procedure.  Finally,  as  a  result  of 
pressure  from  the  White  House  the  Democrats 
agreed  upon  a  report  on  the  bill,  but  the  in- 
surgents forced  a  caucus.  As  a  result  of  the 
caucus,  which  lasted  over  a  week,  all  the  Dem- 
ocrats came  together,  and  Mr.  Henry  retired 
from  the  field  of  opposition.  The  Republican  mem- 
bers of  the  conmiittee  were  called  in  and  a  formal 

PAGE  19 


History  of  Federal  Reserve  Act 


vote  on  the  bill  was  taken.  This  resulted  in  a  report 
to  the  House  on  September  9,  where  the  measure 
was  perfunctorily  debated  and  finally  adopted  on 
September  18  by  a  vote  of  286  to  85. 

The  action  of  the  House  of  Representatives 
was  so  speedy  that  the  country  had  hardly  had  time 
to  fully  understand  the  measure  that  the  new  Demo- 
cratic administration  was  forcing  upon  it.  The 
Senate  had  especially  created  a  new  committee,  the 
Committee  on  Banking  and  Currency,  to  consider 
this  measure,  and  placed  at  the  head  of  it  Senator 
Robert  L.  Owen,  of  Oklahoma.  Senator  Owen  had 
made  repeated  attempts  to  call  his  committee  to- 
gether ever  since  the  bill  was  introduced  in  the 
House,  but  without  success.  The  members  of  the 
Senate  committee  were  opposed  to  precipitated  ac- 
tion. 

In  August  a  hurried  call  of  the  American 
Bankers'  Association  was  convened  in  Chicago  and 
a  committee  of  bankers  elected  to  wait  upon  Con- 

PAGE  30 


History  of  Federal  Reserve  Act 


grass.  This  committee  was  given  definite  instruc- 
tions as  to  what  features  of  the  bill  to  oppose.  The 
bankers  were  permitted  to  appear  before  the  Senate 
committee  the  first  of  September. 

This  again  brought  forth  some  criticism  from 
the  White  House  and  the  chairman  of  the  House 
banking  committee,  Mr.  Glass.  It  was  insisted  that 
the  sole  objection  of  the  bankers  to  the  House  bill 
was  that  it  contemplated  the  shifting  of  bank  re- 
serves, and  to  this  only  the  large  banks  in  the  re- 
serve cities  were  opposed.  The  President  was  un- 
willing that  the  Senate  committee  should  delay  ac- 
tion long  enough  to  listen  to  the  arguments  of  the 
bankers,  but  he  failed  to  obtain  his  wish  as  com- 
pletely as  he  did  in  the  House. 

The  opening  of  hearings  before  the  Senate 
committee  brought  forth  many  witnesses  who  clam- 
ored to  be  heard.  The  hearings  stretched  through 
September  and  well  up  into  October.  The  printed 
records  of  these  hearings  covered  many  times  the 
number  of  pages  as  did  the  hearings  before  the 

PAGE  ii 


History  of  Federal  Reserve  Act 


House  committee.  The  hearings  were  more  com- 
plete than  the  hearings  on  the  House  side  because  the 
witnesses  had  a  definite  proposition  before  them  to 
discuss.  Before  these  were  completed  a  second  con- 
vention of  bankers,  more  especially  for  the  country 
banks,  was  held  in  Boston,  at  which  another  delega- 
tion was  sent  to  oppose  certain  features  of  the  bill 
before  the  Senate  committee. 

The  country  bankers  had  many  and  varied  com- 
plaints to  make.  They  opposed  anything  like  a  free 
clearing  house  for  checks,  they  opposed  the  large 
subscription  to  stock  of  the  reserve  banks  by  country 
banks  and  they  opposed  the  establishment  of  savings 
departments  and  the  segregation  of  capital.  But  it 
was  not  until  the  concluding  days  of  the  hearing  that 
the  most  dramatic  moment  was  witnessed. 

Frank  A.  Vanderlip,  of  the  National  City 
Bank,  New  York  City,  reappeared  as  a  witness  be- 
fore the  committee,  and  offered  a  comprehensive 
plan  for  the  establishment  of  a  central  reserve  bank, 
owned  by  the  public  and  banks  jointly  and  controlled 

PAGE  a 


History  of  Federal  Reserve  Act 


by  the  government.  It  was  evident  that  Mr.  Van- 
derlip  had  been  requested  to  take  this  step 
upon  advice  of  certain  members  of  the  Senate  com- 
mittee. Later  the  truth  of  this  assumption  was  veri- 
fied, when  the  Republican  members  of  the  committee 
reported  this  plan  in  modified  form  to  the  Senate. 

Hearings  were  closed  in  October,  and  the  full 
membership  of  the  Senate  committee,  both  Republi- 
cans and  Democrats,  went  into  executive  session  on 
the  bill.  In  the  meantime  repeated  attempts  were 
made  to  persuade  the  President  to  permit  Congress 
to  adjourn  and  to  take  up  the  currency  bill  at  the 
regular  session  to  meet  in  December.  This  the 
President  consistently  refused  to  do.  As  a  conse- 
quence the  Congress  remained  technically  in  session 
without  stop,  thereby  merging  the  extra  session 
called  in  April  with  the  regular  session  begiiming 
the  first  Monday  in  December. 

In  the  meantime  the  administration  bill  was  by 
no  means  having  an  easy  time  in  committee.  Upon 
the  fundamentals  the  administration  Senators  were 


PAGE  23 


History  of  Federal  Reserve  Act 


every  time  outvoted.  Senators  O' Gorman,  of  New 
York;  Reed,  of  Missouri,  and  Hitchcock,  of  Ne- 
braska, refused  to  stand  in  line  with  the  administra- 
tion's policies.  The  President  called  members  of 
the  committee  to  the  White  House  and  lectured  them 
and  did  everything  he  could  to  whip  them  into  line. 
Finally  he  had  his  followers  in  the  Senate  call  a 
Democratic  conference  on  the  bill,  having  the  state- 
ment published  that  the  Democrats  could  not  stand 
by  any  report  from  the  committee  which  failed  to 
receive  the  support  of  the  majority  members. 

Upon  the  day  of  the  conference  it  was  learned 
that  Senators  O'Gorman  and  Reed  were  back  in  the 
Democratic  ranks,  thereby  permitting  six  Demo- 
cratic Senators  to  come  together  on  a  bill.  Senator 
Hitchcock  still  remained  recalcitrant.  The  Demo- 
cratic conferen^ce  was  dismissed  without  action  and 
the  six  Democratic  members  of  the  committee  left 
the  committee  room  and  began  preparing  a  report 
on  the  bill  in  private.  This  left  Senator  Hitchcock 
and  five  Republicans  in  the  committee  room,  who 

PAGE  24 


History  of  Federal  Reserve  Act 


also  began  the  preparation  of  a  separate  report  to 
the  Senate.  On  November  20  the  two  sections  of 
the  committee  came  together  and  agreed  to  report 
a  disagreement  to  the  Senate,  transmitting  two 
recommendations  on  the  House  bill.  The  report 
was  filed  with  the  Senate  two  days  later. 

Immediately  plans  were  drawn  for  hurried  ac- 
tion on  the  bill.  It  was  desirous  that  the  measure 
be  placed  on  the  statute  books  before  the  holiday 
recess.  A  Democratic  caucus  was  called  which  de- 
cided to  hold  the  Senate  in  daily  sessions  from  10 
o'clock  in  the  morning  until  1 1  o'clock  at  night  until 
a  final  vote  was  had  on  the  bill.  Furthermore  this 
caucus  took  up  the  Democratic  draft  of  the  bill, 
revised  it  slightly,  and  endorsed  it  for  Democratic 
favor. 

This  action  practically  assured  the  passage  of 
the  Democratic  measure,  but  the  Republican  minor- 
ity in  the  Senate  was  able  to  compel  some  delay. 
The  minority  was  successful  in  keeping  up  the  de- 
bate until  the  week  preceding  Christmas.     This 

PAGE  i5 


History  of  Federal  Reserve  Act 


was  indeed  a  task  as  the  Democrats  indulged  in  the 
debate  but  sparingly.  Finally  a  vote  v^as  taken 
on  the  evening  of  December  19,  resulting  in  a  vic- 
tory for  the  Democratic  measure  by  a  vote  of  54  to 
34,  several  Republicans  voting  with  the  Democrats. 
Plans  had  been  perfected  to  have  but  three 
conferees  on  the  bill  from  either  House,  but  because 
this  contemplated  eliminating  his  name  Senator 
O 'Gorman  raised  an  objection,  wherefore  the  Sen- 
ate appointed  nine  conferees,  six  Democrats  and 
three  Republicans.  The  House  appointed  three 
conferees,  and  the  committee  began  its  deliberations 
on  the  afternoon  of  December  20.  The  conference 
report  was  adopted  on  December  23,  and  the  bill 
signed  by  the  President  on  the  same  day. 

Congress  immediately  adjourned  for  a  rest. 
This  brought  to  a  conclusion  possibly  the  most 
noted  session  of  Congress  during  the  Wilson  admin- 
istration, a  session  which  placed  on  the  statute  books 
two  intensely  important  measures,  a  Democratic 
tariff  law  and  the  Federal  Reserve  Act.  i 

PACE  26 


The  Federal  Reserve  Act 


The  Federal  Reserve  Act 

Be  it  enacted  by  the  Senate  and  House  of  Represen- 
tatives of  the  United  States  of  America  in  Congress  as- 
sembled, That  the  short  title  of  this  Act  shall  be  the 
"Federal   Reserve  Act." 

Wherever  the  word  "bank"  is  used  in  this  Act,  the 
word  shall  be  held  to  include  State  bank,  banking  asso- 
ciation, and  trust  company,  except  where  national  banks 
or  Federal  reserve  banks  are  specifically  referred  to. 

The  terms  "national  bank"  and  "national  banking 
association"  used  in  this  Act  shall  be  held  to  be  synony- 
mous and  interchangeable.  The  term  "member  bank" 
shall  be  held  to  mean  any  national  bank,  State  bank,  or 
bank  or  trust  company  which  has  become  a  member  of 
one  of  the  reserve  banks  created  by  this  Act.  The  term 
"board"  shall  be  held  to  mean  Federal  Reserve  Board; 
the  term  "district"  shall  be  held  to  mean  Federal  reserve 
district;  the  term  "reserve  bank"  shall  be  held  to  mean 
Federal  reserve  bank. 

Federal  Reserve  Districts 

Sec.  2.  As  soon  as  practicable,  the  Secretary  of  the 
Treasury,  the  Secretary  of  Agriculture  and  the  Comp- 


FAGEi? 


The  Federal  Reserve  Act 


troller  of  the  Currency,  acting  as  "The  Reserve  Bank 
Organization  Committee,"  shall  designate  not  less  than 
eight  nor  more  than  twelve  cities  to  be  known  as  Federal 
reserve  cities,  and  shall  divide  the  continental  United 
States,  excluding  Alaska,  into  districts,  each  district  to 
contain  only  one  of  such  Federal  reserve  cities.  The 
determination  of  said  organization  committee  shall  not 
be  subject  to  review  except  by  the  Federal  Reserve  Board 
when  organized:  Provided,  That  the  districts  shall  be 
apportioned  with  due  regard  to  the  convenience  and  cus- 
tomary course  of  business  and  shall  not  necessarily  be 
coterminous  with  any  State  or  States.  The  districts 
thus  created  may  be  readjusted  and  new  districts  may 
from  time  to  time  be  created  by  the  Federal  Reserve 
Board,  not  to  exceed  twelve  in  all.  Such  districts  shall 
be  known  as  Federal  reserve  districts  and  may  be  desig- 
nated by  number.  A  majority  of  the  organization  com- 
mittee shall  constitute  a  quorum  with  authority  to  act. 

Said  organization  committee  shall  be  authorized  to 
employ  counsel  and  expert  aid,  to  take  testimony,  to  send 
for  persons  and  papers,  to  administer  oaths,  and  to  make 
such  investigation  as  may  be  deemed  necessary  by  the 
said  committee  in  determining  the  reserve  districts  and  in 
designating  the  cities  within  such  districts  where  such 
Federal  reserve  banks  shall  be  severally  located.     The 


PAGE  98 


The  Federal  Reserve  Act 


said  committee  shall  supervise  the  organization  in  each 
of  the  cities  designated  of  a  Federal  reserve  bank,  which 
shall  include  in  its  title  the  name  of  the  city  in  which 
it  is  situated,  as  "Federal  Reserve  Bank  of  Chicago." 

Under  regulations  to  be  prescribed  by  the  organiza- 
tion committee,  every  national  banking  association  in  the 
United  States  is  hereby  required,  and  every  eligible  bank 
in  the  United  States  and  every  trust  company  within  the 
District  of  Columbia,  is  hereby  authorized  to  signify  in 
writing,  within  sixty  days  after  the  passage  of  this  Act, 
its  acceptance  of  the  terms  and  provisions  hereof.  When 
the  organization  committee  shall  have  designated  the 
cities  in  which  Federal  reserve  banks  are  to  be  organized, 
and  fixed  the  geographical  limits  of  the  Federal  reserve 
districts,  every  national  banking  association  within  that 
district  shall  be  required  within  thirty  days  after  notice 
from  the  organization  committee,  to  subscribe  to  the 
capital  stock  of  such  Federal  reserve  bank  in  a  sum  equal 
to  six  per  centum  of  the  paid-up  capital  stock  and  sur- 
plus of  such  bank,  one-sixth  of  the  subscription  to  be 
payable  on  call  of  the  organization  committee  or  of  the 
Federal  Reserve  Board,  one-sixth  within  three  months 
and  one-sixth  within  six  months  thereafter,  and  the  re- 
mainder of  the  subscription,  or  any  part  thereof,  shall  be 
subject  to  call  when  deemed  necessary  by  the  Federal 


PAGE  29 


The  Federal  Reserve  Act 


Reserve  Board,  said  payments  ix>  be  in  gold  or  gold  cer- 
tificates. 

The  shareholders  of  every  Federal  reserve  bank 
shall  be  held  individually  responsible,  equally  and  ratably, 
and  not  one  for  another,  for  all  contracts,  debts,  and  en- 
gagements of  such  bank  to  the  extent  of  the  amount  of 
their  subscriptions  to  such  stock  at  the  par  vg,lue  thereof 
in  addition  to  the  amount  subscribed,  whether  such  sub- 
scriptions have  been  paid  up  in  whole  or  in  part,  under 
the  provisions  of  this  Act. 

Any  national  bank  failing  to  signify  its  acceptance 
of  the  terms  of  this  Act  within  the  sixty  days  aforesaid, 
shall  cease  to  act  as  a  reserve  agent,  upon  thirty  days* 
notice,  to  be  given  within  the  discretion  of  the  said  or- 
ganization committee  or  of  the  Federal  Reserve  Board. 

Should  any  national  banking  association  in  the 
United  States  now  organized  fail  within  one  year  after 
the  passage  of  this  Act  to  become  a  member  bank  or  fail 
to  comply  with  any  of  the  provisions  of  this  Act  applic- 
able thereto,  all  of  the  rights,  privileges,  and  franchises 
of  such  association  granted  to  it  under  the  national-bank 
Act,  or  under  the  provisions  of  this  Act,  shall  be  thereby 
forfeited.  Any  noncompliance  with  or  violation  of  this 
Act  shall,  however,  be  determined  and  adjudged  by  any 


PAGE  30 


The  Federal  Reserve  Act 


court  of  the  United  States  of  competent  jurisdiction  in 
a  suit  brought  for  that  purpose  in  the  District  or  Terri- 
tory in  which  such  bank  is  located,  under  direction  of  the 
Federal  Reserve  Board,  by  the  Comptroller  of  the  Cur- 
rency in  his  own  name  before  the  association  shall  be 
declared  dissolved.  In  cases  of  such  noncompliance  or 
violation,  other  than  the  failure  to  become  A  member 
bank  under  the  provisions  of  this  Act,  every  director 
who  participated  in  or  assented  to  the  same  shall  be  held 
liable  in  his  personal  or  individual  capacity  for  all  dam- 
ages which  said  bank,  its  shareholders,  or  any  other  per- 
son shall  have  sustained  in  consequence  of  such  violation. 

Such  dissolution  shall  not  take  away  or  impair  any 
remedy  against  such  corporation,  its  stockholders  or 
officers,  for  any  liability  or  penalty  which  shall  have  been 
previously  incurred. 

Should  the  subscriptions  by  banks  to  the  stock  of 
said  Federal  reserve  banks  or  any  one  or  more  of  them  be, 
in  the  judgment  of  the  organization  committee,  insuffi- 
cient to  provide  the  amount  of  capital  required  therefor, 
then  and  in  that  event  the  said  organization  committee 
may,  under  conditions  and  regulations  to  be  prescribed 
by  it,  offer  to  public  subscription  at  par  such  an  amount 
of  stock  in  said  Federal  reserve  banks,  or  any  one  or 


PAGE  31 


i 


The  Federal  Reserve  Act 


more  of  them,  as  said  committee  shall  determine,  sub- 
ject to  the  same  conditions  as  to  payment  and  stock  lia- 
bility as  provided  for  member  banks. 

No  individual,  copartnership,  or  corporation  other 
than  a  member  bank  of  its  district  shall  be  permitted  to 
subscribe  for  or  to  hold  at  any  time  more  than  $25,000 
par  value  of  stock  in  any  Federal  reserve  bank.  Such 
stock  shall  be  known  as  public  stock  and  may  be  trans- 
ferred on  the  books  of  the  Federal  reserve  bank  by  the 
chairman  of  the  board  of  directors  of  such  bank. 

Should  the  total  subscriptions  by  banks  and  the  pub- 
lic to  the  stock  of  said  Federal  reserve  banks,  or  any  one 
or  more  of  them,  be,  in  the  judgment  of  the  organization 
committee,  insufficient  to  provide  the  amount  of  capital 
required  therefor,  then  and  in  that  event  the  said  or- 
ganization committee  shall  allot  to  the  United  States 
such  an  amount  of  said  stock  as  said  committee  shall 
determine.  Said  United  States  stock  shall  be  paid  for  at 
par  out  of  any  money  in  the  Treasury  not  otherwise 
appropriated,  and  shall  be  held  by  the  Secretary  of  the 
Treasury  and  disposed  of  for  the  benefit  of  the  United 
States  in  such  manner,  at  such  times,  and  at  such  price, 
not  less  than  par,  as  the  Secretary  of  the  Treasury  shall 
determine. 


PAGE  32 


The  Federal  Reserve  Act 


Stock  not  held  by  member  banks  shall  not  be  en- 
titled to  voting  power. 

The  Federal  Reserve  Board  is  hereby  empowered 
to  adopt  and  promulgate  rules  and  regulations  govern- 
ing the  transfers  of  said  stock. 

No  Federal  reserve  bank  shall  commence  business 
with  a  subscribed  capital  less  than  $4,000,000.  The  or- 
ganization of  reserve  districts  and  Federal  reserve  cities 
shall  not  be  construed  as  changing  the  present  status  of 
reserve  cities  and  central  reserve  cities,  except  in  so  far 
as  this  Act  changes  the  amount  of  reserves  that  may  be 
carried  with  approved  reserve  agents  located  therein. 
The  organization  committee  shall  have  power  to  appoint 
such  assistants  and  incur  such  expenses  in  carrying  out 
the  provisions  of  this  Act  as  it  shall  deem  necessary,  and 
such  expenses  shall  be  payable  by  the  Treasurer  of  the 
United  States  upon  voucher  approved  by  the  Secretary 
of  the  Treasury,  and  the  sum  of  $100,000,  or  so  much 
thereof  as  may  be  necessary,  is  hereby  appropriated,  out 
of  any  moneys  in  the  Treasury  not  otherwise  appropri- 
ated, for  the  payment  of  such  expenses. 

Branch  OflBces 

Sec.  3.  Each  Federal  reserve  bank  shall  establish 
branch  banks  within  the  Federal  reserve  district  in  which 
it  is  located  and  may  do  so  in  the  district  of  any  Federal 


PAGE  33 


The  Federal  Reserve  Act 


reserve  bank  which  may  have  been  suspended.  Such 
branches  shall  be  operated  by  a  board  of  directors  under 
rules  and  regulations  approved  by  the  Federal  Reserve 
Board.  Directors  of  branch  banks  shall  possess  the  same 
qualifications  as  directors  of  the  Federal  reserve  banks. 
Four  of  said  directors  shall  be  selected  by  the  reserve 
bank  and  three  by  the  Federal  Reserve  Board,  and  they 
shall  hold  office  during  the  pleasure,  respectively,  of  the 
parent  bank  and  the  Federal  Reserve  Board.  The  re- 
serve bank  shall  designate  one  of  the  directors  as  man- 
ager. 

Federal  Reserve  Banks 

Sec.  4.  When  the  organization  committee  shall 
have  established  Federal  reserve  districts  as  provided  in 
section  two  of  this  Act,  a  certificate  shall  be  filed  with 
the  Comptroller  of  the  Currency  showing  the  geographi- 
cal limits  of  such  districts  and  the  Federal  reserve  city 
designated  in  each  of  such  districts.  The  Comptroller 
of  the  Currency  shall  thereupon  cause  to  be  forwarded 
to  each  national  bank  located  in  each  district,  and  to  such 
other  banks  declared  to  be  eligible  by  the  organization 
committee  which  may  apply  therefor,  an  application 
blank  in  form  to  be  approved  by  the  organization  com- 
mittee, which  blank  shall  contain  a  resolution  to  be 
adopted  by  the  board  of  directors  of  each  bank  executing 


PAGE  34 


The  Federal  Reserve  Act 


I 


such  application,  authorizing  a  subscription  to  the  capi- 
tal stock  of  the  Federal  reserve  bank  organizing  in  that 
district  in  accordance  with  the  provisions  of  this  Act. 

When  the  minimum  amount  of  capital  stock  pre- 
scribed by  this  Act  for  the  organization  of  any  Federal 
reserve  bank  shall  have  been  subscribed  and  allotted,  the 
organization  committee  shall  designate  any  five  banks  of 
those  whose  applications  have  been  received,  to  execute 
a  certificate  of  organization,  and  thereupon  the  banks  so 
designated  shall,  under  their  seals,  make  an  organization 
certificate  which  shall  specifically  state  the  name  of  such 
Federal  reserve  bank,  the  territorial  extent  of  the  district 
over  which  the  operations  of  such  Federal  reserve  bank 
are  to  be  carried  on,  the  city  and  State  in  which  said 
bank  is  to  be  located,  the  amount  of  capital  stock  and  the 
number  of  shares  into  which  the  same  is  divided,  the 
name  and  place  of  doing  business  of  each  bank  execut- 
ing such  certificate,  and  of  all  banks  which  have  sub- 
scribed to  the  capital  stock  of  such  Federal  reserve  bank 
and  the  number  of  shares  subscribed  by  each,  and  the 
fact  that  the  certificate  is  made  to  enable  those  banks 
executing  same,  and  all  banks  which  have  subscribed  or 
may  thereafter  subscribe  to  the  capital  stock  of  such 
Federal  reserve  bank,  to  avail  themselves  of  the  advant- 
ages of  this  Act. 


PAGE  35 


The  Federal  Reserve  Act 


The  said  organization  certificate  shall  be  acknowl- 
edged before  a  judge  of  some  court  of  record  or  notary 
public;  and  shall  be,  together  with  the  acknowledgment 
thereof,  authenticated  by  the  seal  of  such  court,  or  no- 
tary, transmitted  to  the  Comptroller  of  the  Currency, 
who  shall  file,  record  and  carefully  preserve  the  same  in 
his  office. 

Upon  the  filing  of  such  certificate  with  the  Comp- 
troller of  the  Currency  as  aforesaid,  the  said  Federal 
reserve  bank  shall  become  a  body  corporate  and  as  such, 
and  in  the  name  designated  in  such  organization  certifi- 
cate, shall  have  power — 

First.    To  adopt  and  use  a  corporate  seal. 

Second.  To  have  succession  for  a  period  of  twenty 
years  from  its  organization  unless  it  is  sooner  dissolved 
by  an  Act  of  Congress,  or  unless  its  franchise  becomes 
forfeited  by  some  violation  of  law. 

Third.    To  make  contracts. 

Fourth.  To  sue  and  be  sued,  complain  and  defend, 
in  any  court  of  law  or  equity. 

Fifth.  To  appoint  by  its  board  of  directors,  such 
officers  and  employees  as  are  not  otherwise  provided  for 
in  this  Act,  to  define  their  duties,  require  bonds  of  them 


PAGE  s6 


The  Federal  Reserve  Act 


and  fix  the  penalty  thereof,  and  to  dismiss  at  pleasure 
such  officers  or  employees. 

Sixth.  To  prescribe  by  its  board  of  directors,  by- 
laws not  inconsistent  with  law,  regulating  the  manner 
in  which  its  general  business  may  be  conducted,  and  the 
privileges  granted  to  it  by  law  may  be  exercised  and 
enjoyed. 

Seventh.  To  exercise  by  its  board  of  directors,  or 
duly  authorized  officers  or  agents,  all  powers  specifically 
granted  by  the  provisions  of  this  Act  and  such  incidental 
powers  as  shall  be  necessary  to  carry  on  the  business  of 
banking  within  the  limitations  prescribed  by  this  Act. 

Eighth.  Upon  deposit  with  the  Treasurer  of  the 
United  States  of  any  bonds  of  the  United,  States  in  the 
manner  provided  by  existing  law  relating  to  national 
banks,  to  receive  from  the  Comptroller  of  the  Currency 
circulating  notes  in  blank,  registered  and  countersigned 
as  provided  by  law,  equal  in  amount  to  the  par  value  of 
the  bonds  so  deposited,  such  notes  to  be  issued  under  the 
same  conditions  and  provisions  of  law  as  relate  to  the 
issue  of  circulating  notes  of  national  banks  secured  by 
bonds  of  the  United  States  bearing  the  circulating  privi- 
lege, except  that  the  issue  of  such  notes  shall  not  be  lim- 
ited to  the  capital  stock  of  such  Federal  reserve  bank. 


FACE  37 


The  Federal  Reserve  Act 


But  no  Federal  reserve  bank  shall  transact  any  busi- 
ness except  such  as  is  incidental  and  necessary  prelim- 
inary to  its  organization  until  it  has  been  authorized  by 
the  Comptroller  of  the  Currency  to  commence  business 
under  the  provisions  of  this  Act. 

Every  Federal  reserve  bank  shall  be  conducted  under 
the  supervision  and  control  of  a  board  of  directors. 

The  board  of  directors  shall  perform  the  duties 
usually  appertaining  to  the  office  of  directors  of  banking 
associations  and  all  such  duties  as  are  prescribed  by  law. 

Said  board  shall  administer  the  affairs  of  said  bank 
fairly  and  impartially  and  without  discrimination  in 
favor  of  or  against  any  member  bank  or  banks  and  shall, 
subject  to  the  provisions  of  law  and  the  order  of  the 
Federal  Reserve  Board,  extend  to  each  member  bank  such 
discounts,  advancements  and  accommodations  as  may  be 
safely  and  reasonably  made  with  due  regard  for  the 
claims  and  demands  of  other  member  banks. 

Such  board  of  directors  shall  be  selected  as  herein- 
after specified  and  shall  consist  of  nine  members,  hold- 
ing office  for  three  years,  and  divided  into  three  classes, 
designated  as  classes  A,  B,  and  C. 


PAGE  38 


The  Federal  Reserve  Act 


Class  A  shall  consist  of  three  members,  who  shall 
be  chosen  by  and  be  representative  of  the  stock-holding 
banks. 

Class  B  shall  consist  of  three  members,  who  at  the 
time  of  their  election  shall  be  actively  engaged  in  their 
district  in  commerce,  agriculture  or  some  other  industrial 
pursuit. 

Class  C  shall  consist  of  three  members  who  shall 
be  designated  by  the  Federal  Reserve  Board.  When  the 
necessary  subscriptions  to  the  capital  stock  have  been 
obtained  for  the  organization  of  any  Federal  reserve 
bank,  the  Federal  Reserve  Board  shall  appoint  the  class 
C  directors  and  shall  designate  one  of  such  directors  as 
chairman  of  the  board  to  be  selected.  Pending  the  desig- 
nation of  such  chairman,  the  organization  committee  shall 
exercise  the  powers  and  duties  appertaining  to  the  office 
of  chairman  in  the  organization  of  such  Federal  reserve 
bank. 

No  Senator  or  Representative  in  Congress  shall  be 
a  member  of  the  Federal  Reserve  Board  or  an  officer 
or  a  director  of  a  Federal  reserve  bank. 

No  director  of  class  B  shall  be  an  officer,  director, 
or  employee  of  any  bank. 


PAGE  39 


The  Federal  Reserve  Act 


No  director  of  class  C  shall  be  an  officer,  director, 
employee,  or  stockholder  of  any  bank. 

Directors  of  class  A  and  class  B  shall  be  chosen  in 
the  following  manner: 

The  chairman  of  the  board  of  directors  of  the  Fed- 
eral reserve  bank  of  the  district  in  which  the  bank  is 
situated  or,  pending  the  appointment  of  such  chairman, 
the  organization  committee  shall  classify  the  member 
banks  of  the  district  into  three  general  groups  or  divi- 
sions. Each  group  shall  contain  as  nearly  as  may  be  one- 
third  of  the  aggregate  number  of  the  member  banks  of 
the  district  and  shall  consist,  as  nearly  as  may  be,  of 
banks  of  similar  capitalization.  The  groups  shall  be 
designated  by  number  by  the  chairman. 

At  a  regularly  called  meeting  of  the  board  of  di- 
rectors of  each  member  bank  in  the  district  it  shall  elect 
by  ballot  a  district  reserve  elector  and  shall  certify  his 
name  to  the  chairman  of  the  board  of  directors  of  the 
Federal  reserve  bank  of  the  district.  The  chairman  shall 
make  lists  of  the  district  reserve  electors  thus  named  by 
banks  in  each  of  the  aforesaid  three  groups  and  shall 
transmit  one  list  to  each  elector  in  each  group. 

Each  member  bank  shall  be  permitted  to  nominate 
to  the  chairman  one  candidate  for  director  of  class  A 


PAGE  40 


The  Federal  Reserve  Act 


and  one  candidate  for  director  of  class  B.  The  candi- 
dates so  nominated  shall  be  listed  by  the  chairman,  in- 
dicating by  whom  nominated,  and  a  copy  of  said  list 
shall,  within  fifteen  days  after  its  completion,  be 
furnished  by  the  chairman  to  each  elector. 

Every  elector  shall,  within  fifteen  days  after  the 
receipt  of  the  said  list,  certify  to  the  chairman  his  first, 
second  and  other  choices  of  a  director  of  class  A  and 
class  B,  respectively,  upon  a  preferential  ballot,  on  a  form 
furnished  by  the  chairman  of  the  board  of  directors 
of  the  Federal  reserve  bank  of  the  district.  Each  elector 
shall  make  a  cross  opposite  the  name  of  the  first,  second 
and  other  choices  for  a  director  of  class  A  and  for  a 
director  of  class  B,  but  shall  not  vote  more  than  one 
choice  for  any  one  candidate. 

Any  candidate  having  a  majority  of  all  votes  cast 
in  the  column  of  first  choice  shall  be  declared  elected. 
If  no  candidate  have  a  majority  of  all  the  votes  in  the 
first  column,  then  there  shall  be  added  together  the  votes 
cast  by  the  electors  for  such  candidates  in  the  second 
column  and  the  votes  cast  for  the  several  candidates  in 
the  first  column.  If  any  candidate  then  have  a  majority 
of  the  electors  voting,  by  adding  together  the  first  and 
second  choices,  he  shall  be  declared  elected.  If  no  candi- 
date have  a  majority  of  electors  voting  when  the  first 


PAGE  41 


The  Federal  Reserve  Act 


and  second  choices  shall  have  been  added,  then  the  votes 
cast  in  the  third  column  for  other  choices  shall  be  added 
together  in  like  manner,  and  the  candidate  then  having 
the  highest  number  of  votes  shall  be  declared  elected. 
An  immediate  report  of  election  shall  be  declared. 

Class  C  directors  shall  be  appointed  by  the  Federal 
Reserve  Board.  They  shall  have  been  for  at  least  two 
years  residents  of  the  district  for  which  they  are  ap- 
pointed, one  of  whom  shall  be  designated  by  said  board 
as  chairman  of  the  board  of  directors  of  the  Federal 
reserve  bank  and  as  "Federal  reserve  agent."  He  shall 
be  a  person  of  tested  banking  experience;  and  in  addi- 
tion to  his  duties  as  chairman  of  the  board  of  directors 
of  the  Federal  reserve  bank  he  shall  be  required  to  main- 
tain, under  regulations  to  be  established  by  the  Federal 
Reserve  Board  a  local  office  of  said  board  on  the  prem- 
ises of  the  Federal  reserve  bank.  He  shall  make  regular 
reports  to  the  Federal  Reserve  Board,  and  shall  act  as 
its  official  representative  for  the  performance  of  the 
functions  conferred  upon  it  by  this  Act.  He  shall  re- 
ceive an  annual  compensation  to  be  fixed  by  the  Federal 
Reserve  Board  and  paid  monthly  by  the  Federal  reserve 
bank  to  which  he  is  designated.  One  of  the  directors 
of  class  C,  who  shall  be  a  person  of  tested  banking 
experience,  shall  be  appointed  by  the  Federal  Reserve 


PAGE  42 


The  Federal  Reserve  Act 


Board  as  deputy  chairman  and  deputy  Federal  reserve 
agent  to  exercise  the  powers  of  the  chairman  of  the 
board  and  Federal  reserve  agent  in  case  of  absence  or 
disability  of  his  principal. 

Directors  of  Federal  reserve  banks  shall  receive, 
in  addition  to  any  compensation  otherwise  provided,  a 
reasonable  allowance  for  necessary  expenses  in  attend- 
ing meetings  of  their  respective  boards,  which  amount 
shall  be  paid  by  the  respective  Federal  reserve  banks. 
Any  compensation  that  may  be  provided  by  boards  of 
directors  of  Federal  reserve  banks  for  directors,  officers 
or  employees  shall  be  subject  to  the  approval  of  the  Fed- 
eral Reserve  Board. 

The  Reserve  Bank  Organization  Committee  may, 
in  organizing  Federal  reserve  banks,  call  such  meetings 
of  bank  directors  in  the  several  districts  as  may  be  neces- 
sary to  carry  out  the  purposes  of  this  Act,  and  may  exer- 
cise the  functions  herein  conferred  upon  the  chairman 
of  the  board  of  directors  of  each  Federal  reserve  bank 
pending  the  complete  organization  of  such  bank. 

At  the  first  meeting  of  the  full  board  of  directors  of 
each  Federal  reserve  bank,  it  shall  be  the  duty  of  the 
directors  of  classes  A,  B  and  C,  respectively,  to  designate 
one  of  the  members  of  each  class  whose  term  of  office  shall 


PAGE  43 


The  Federal  Reserve  Act 


expire  in  one  year  from  the  first  of  January  nearest  to 
date  of  such  meeting,  one  whose  term  of  office  shall 
expire  at  the  end  of  two  years  from  said  date,  and  one 
whose  term  of  office  shall  expire  at  the  end  of  three  years 
from  said  date.  Thereafter  every  director  of  a  Federal 
reserve  bank  chosen  as  hereinbefore  provided  shall  hold 
office  for  a  term  of  three  years.  Vacancies  that  may 
occur  in  the  several  classes  of  directors  of  Federal  re- 
serve banks  may  be  filled  in  the  manner  provided  for  the 
original  selection  of  such  directors,  such  appointees  to 
hold  office  for  the  unexpired  terms  of  their  predecessors. 

Stock  Issues — Increase  &  Decrease  of  Capital 

Sec.  5.  The  capital  stock  of  each  Federal  reserve 
bank  shall  be  divided  into  shares  of  $100  each.  The  out- 
standing capital  stock  shall  be  increased  from  time  to 
time  as  member  banks  increase  their  capital  stock  and 
surplus  or  as  additional  banks  become  members,  and 
may  be  decreased  as  member  banks  reduce  their  capital 
stock  or  surplus  or  cease  to  be  members.  Shares  of  the 
capital  stock  of  Federal  reserve  banks  owned  by  mem- 
ber banks  shall  not  be  transferred  or  hypothecated. 
When  a  member  bank  increases  its  capital  stock  or  sur- 
plus, it  shall  thereupon  subscribe  for  an  additional 
amount  of  capital  stock  of  the  Federal  reserve  bank  of 
its  district  equal  to  six  per  centum  of  the  said  increase, 


PAGE  44 


The  Federal  Reserve  Act 


one-half  of  said  subscription  to  be  paid  in  the  manner 
hereinbefore  provided  for  original  subscription  and  one- 
half  subject  to  call  of  the  Federal  Reserve  Board.  A 
bank  applying  for  stock  in  a  Federal  reserve  bank  at  any 
time  after  the  organization  thereof  must  subscribe  for 
an  amount  of  the  capital  stock  of  the  Federal  reserve 
bank  equal  to  six  per  centum  of  the  paid-up  capital  stock 
and  surplus  of  said  applicant  bank,  paying  therefor  its 
par  value  plus  one-half  of  one  per  centum  a  month  from 
the  period  of  the  last  dividend.  When  the  capital  stock 
of  any  Federal  reserve  bank  shall  have  been  increased, 
either  on  account  of  the  increase  of  capital  stock  of  mem- 
ber banks  or  on  account  of  the  increase  in  the  number 
of  member  banks,  the  board  of  directors  shall  cause  to 
be  executed  a  certificate  to  the  Comptroller  of  the  Cur- 
rency showing  the  increase  in  capital  stock,  the  amount 
paid  in,  and  by  whom  paid.  When  a  member  bank  re- 
duces its  capital  st^ck  it  shall  surrender  a  proportionate 
amount  of  its  holdings  in  the  capital  of  said  Federal 
reserve  bank,  and  when  a  member  bank  voluntarily  liqui- 
dates it  shall  surrender  all  of  its  holdings  of  the  capital 
stock  of  said  Federal  reserve  bank  and  be  released  from 
its  stock  subscription  not  previously  called.  In  either 
case  the  shares  surrendered  shall  be  canceled  and  the 
member  bank  shall  receive  in  payment  therefor,  under 
regulations   to   be   prescribed   by  the   Federal   Reserve 


PAGE  45 


The  Federal  Reserve  Act 


Board,  a  sum  equal  to  its  cash-paid  subscriptions  on  the 
shares  surrendered  and  one-half  of  one  per  centum  a 
month  from  the  period  of  the  last  dividend,  not  to  ex- 
ceed the  book  value  thereof,  less  any  liability  of  such 
member  bank  to  the  Federal  reserve  bank. 

Sec.  6.  If  any  member  bank  shall  be  declared  in- 
solvent and  a  receiver  appointed  therefor,  the  stock  held 
by  it  in  said  Federal  reserve  bank  shall  be  canceled, 
without  impairment  of  its  liability,  and  all  cash-paid  sub- 
scriptions on  said  stock,  with  one-half  of  one  per  centum 
per  month  from  the  period  of  last  dividend,  not  to  ex- 
ceed the  book  value  thereof,  shall  be  first  applied  to  all 
debts  of  the  insolvent  member  bank  to  the  Federal  re- 
serve bank,  and  the  balance,  if  any,  shall  be  paid  to  the 
receiver  of  the  insolvent  bank.  Whenever  the  capital 
stock  of  a  Federal  reserve  bank  is  reduced,  either  on 
account  of  a  reduction  in  capital  stock  of  any  member 
bank  or  of  the  liquidation  or  insolvency  of  such  bank,  the 
board  of  directors  shall  cause  to  be  executed  a  certificate 
to  the  Comptroller  of  the  Currency  showing  such  reduc- 
tion of  capital  stock  and  the  amount  repaid  to  such  bank. 

Division  of  Earnings 

Sec.  7.  After  all  necessary  expenses  of  a  Federal 
reserve  bank  have  been  paid  or  provided  for,  the  stock- 
holders shall  be  entitled  to  receive  an  annual  dividend 


PAGE  46 


The  Federal  Reserve  Act 


of  six  per  centum  on  the  paid-in  capital  stock,  which 
dividend  shall  be  cumulative.  After  the  aforesaid  divi- 
dend claims  have  been  fully  met,  all  the  net  earnings  shall 
be  paid  to  the  United  States  as  a  franchise  tax,  except 
that  one-half  of  such  net  earnings  shall  be  paid  into  a 
surplus  fund  until  it  shall  amount  to  forty  per  centum 
of  the  paid-in  capital  stock  of  such  bank. 

The  net  earnings  derived  by  the  United  States  from 
Federal  reserve  banks  shall,  in  the  discretion  of  the  Sec- 
retary, be  used  to  supplement  the  gold  reserve  held 
against  outstanding  United  States  notes,  or  shall  be 
applied  to  the  reduction  of  the  outstanding  bonded  in- 
debtedness of  the  United  States  under  regulations  to  be 
prescribed  by  the  Secretary  of  the  Treasury.  Should  a 
Federal  reserve  bank  be  dissolved  or  go  into  liquidation, 
any  surplus  remaining,  after  the  payment  of  all  debts, 
dividend  requirements  as  hereinbefore  provided,  and  the 
par  value  of  the  stock,  shall  be  paid  to  and  become  the 
property  of  the  United  States  and  shall  be  similarly  ap- 
plied. 

Federal  reserve  banks,  including  the  capital  stock 
and  surplus  therein  and  the  income  derived  therefrom, 
shall  be  exempt  from  Federal,  State,  and  local  taxation, 
except  taxes  upon  real  estate. 


PAGE  47 


The  Federal  Reserve  Act 


Sec.  8.  Section  fifty-one  hundred  and  fifty-four, 
United  States  Revised  Statutes,  is  hereby  amended  to 
read  as  follows : 

Any  bank  incorporated  by  special  law  of  any  State 
or  of  the  United  States  or  organized  under  the  general 
laws  of  any  State  or  of  the  United  States  and  having  an 
unimpaired  capital  sufficient  to  entitle  it  to  become  a 
national  banking  association  under  the  provisions  of  the 
existing  laws  may,  by  the  vote  of  the  shareholders  own- 
ing not  less  than  fifty-one  per  centum  of  the  capital 
stock  of  such  bank  or  banking  association,  with  the  ap- 
proval of  the  Comptroller  of  the  Currency,  be  converted 
into  a  national  banking  association,  with  any  name  ap- 
proved by  the  Comptroller  of  the  Currency:  Provided, 
however,  That  said  conversion  shall  not  be  in  contra- 
vention of  the  State  law.  In  such  case  the  articles  of  as- 
sociation and  organization  certificate  may  be  executed  by 
a  majority  of  the  directors  of  the  bank  or  banking  insti- 
tution, and  the  certificate  shall  declare  that  the  owners 
of  fifty-one  per  centum  of  the  capital  stock  have  author- 
ized the  directors  to  make  such  certificate  and  to  change 
or  convert  the  bank  or  banking  institution  into  a  national 
association.  A  majority  of  the  directors,  after  executing 
the  articles  of  association  and  the  organization  certificate, 
shall  have  power  to  execute  all  other  papers  and  to  do 


PAGE  48 


The  Federal  Reserve  Act 


whatever  may  be  required  to  make  its  organization  per- 
fect and  complete  as  a  national  association.  The  shares 
of  any  such  bank  may  continue  to  be  for  the  same  amount 
each  as  they  were  before  the  conversion,  and  the  directors 
may  continue  to  be  directors  of  the  association  until 
others  are  elected  or  appointed  in  accordance  with  the 
provisions  of  the  statutes  of  the  United  States.  When 
the  comptroller  has  given  to  such  bank  or  banking  asso- 
ciation a  certificate  that  the  provisions  of  this  Act  have 
been  complied  with,  such  bank  or  banking  association,  and 
all  its  stockholders,  officers,  and  employees,  shall  have 
the  same  powers  and  privileges,  and  shall  be  subject  to 
the  same  duties,  liabilities,  and  regulations,  m  all  respects, 
as  shall  have  been  prescribed  by  the  Federal  Reserve  Act 
and  by  the  national  banking  Act  for  associations  origi- 
nally organized  as  national  banking  associations. 

State  Banks  as  Members 

Sec.  9.  Any  bank  incorporated  by  special  law  of 
any  State,  or  organized  under  the  general  laws  of  any 
State  or  of  the  United  States,  may  make  application  to 
the  reserve  bank  organization  committee,  pending  organi- 
zation, and  thereafter  to  the  Federal  Reserve  Board  for 
the  right  to  subscribe  to  the  stock  of  the  Federal  reserve 
bank  organized  or  to  be  organized  within  the  Federal 
reserve  district  where  the  applicant  is  located.    The  or- 


PAGE  49 


The  Federal  Reserve  Act 


ganization  committee  or  the  Federal  Reserve  Board, 
under  such  rules  and  regulations  as  it  may  prescribe, 
subject  to  the  provisions  of  this  section,  may  permit  the 
applying  bank  to  become  a  stockholder  in  the  Federal 
reserve  bank  of  the  district  in  which  the  applying  bank 
is  located.  Whenever  the  organization  committee  or  the 
Federal  Reserve  Board  shall  permit  the  applying  bank  to 
become  a  stockholder  in  the  Federal  reserve  bank  of 
the  district,  stock  shall  be  issued  and  paid  for  under  the 
rules  and  regulations  in  this  Act  provided  for  national 
banks  which  become  stockholders  in  Federal  reserve 
banks. 

The  organization  committee  or  the  Federal  Reserve 
Board  shall  establish  by-laws  for  the  general  government 
of  its  conduct  in  acting  upon  applications  made  by  the 
State  banks  and  banking  associations  and  trust  com- 
panies for  stock  ownership  in  Federal  reserve  banks. 
Such  by-laws  shall  require  applying  banks  not  organized 
under  Federal  law  to  comply  with  the  reserve  and  capi- 
tal requirements  and  to  submit  to  the  examination  and 
regulations  prescribed  by  the  organization  committee  or 
by  the  Federal  Reserve  Board. .  No  applying  bank  shall 
be  admitted  to  membership  in  a  Federal  reserve  bank 
unless  it  possesses  a  paid-up  unimpaired  capital  sufficient 
to  entitle  it  to  become  a  national  banking  association  in 


PAGE  50 


The  Federal  Reserve  Act 


the  place  where  it  is  situated,  under  the  provisions  of 
the  national  banking  Act. 

Any  bank  becoming  a  member  of  a  Federal  reserve 
bank  under  the  provisions  of  this  section  shall,  in  addi- 
tion to  the  regulations  and  restrictions  hereinbefore  pro- 
vided, be  required  to  conform  to  the  provisions  of  law 
imposed  on  the  national  banks  respecting  the  limitation 
of  liability  which  may  be  incurred  by  any  person,  firm, 
or  corporation  to  such  banks,  the  prohibition  against 
making  purchase  of  or  loans  on  stiock  of  such  banks,  and 
the  withdrawal  or  impairment  of  capital,  or  the  payment 
of  unearned  dividends,  and  to  such  rules  and  regulations 
as  the  Federal  Reserve  Board  may,  in  pursuance  there- 
of, prescribe. 

Such  banks,  and  the  officers,  agents,  and  employees 
thereof,  shall  also  be  subject  to  the  provisions  of  and  to 
the  penalties  prescribed  by  sections  fifty-one  hundred  and 
ninety-eight,  fifty-two  hundred,  fifty-two  hundred  and 
one,  and  fifty-two  hundred  and  eight,  and  fifty-two 
hundred  and  nine  of  the  Revised  Statutes.  The  mem- 
ber banks  shall  also  be  required  to  make  reports  of  the 
conditions  and  of  the  payments  of  dividends  to  the  comp- 
troller, as  provided  in  sections  fifty-two  hundred  and 
eleven  and  fifty-two  hundred  and  twelve  of  the  Revised 


PAGE  SI 


The  Federal  Reserve  Act 


Statutes,  and  shall  be  subject  to  the  penalties  prescribed 
by  section  fifty- two  hundred  and  thirteen  for  the  failure 
to  make  such  report. 

If  at  any  time  it  shall  appear  to  the  Federal  Reserve 
Board  that  a  member  bank  has  failed  to  comply  with  the 
provisions  of  this  section  or  the  regulations  of  the  Fed- 
eral Reserve  Board,  it  shall  be  within  the  power  of  the 
said  board,  after  hearing,  to  require  such  bank  to  sur- 
render its  stock  in  the  Federal  reserve  bank;  upon  such 
surrender  the  Federal  reserve  bank  shall  pay  the  cash- 
paid  subscriptions  to  the  said  stock  with  interest  at  the 
rate  of  one-half  of  one  per  centum  per  month,  computed 
from  the  last  dividend,  if  earned,  not  to  exceed  the  book 
value  thereof,  less  any  liability  to  said  Federal  reserve 
bank,  except  the  subscription  liability  not  previously 
called,  which  shall  be  canceled,  and  said  Federal  reserve 
bank  shall,  upon  notice  from  the  Federal  Reserve  Board, 
be  required  fo  suspend  said  bank  from  further  privileges 
of  membership,  and  shall  within  thirty  days  of  such 
notice  cancel  and  retire  its  stock  and  make  payment  there- 
for in  the  manner  herein  provided. 

The  Federal  Reserve  Board  may  restore  member- 
ship upon  due  proof  of  compliance  with  the  conditions 
imposed  by  this  section. 


PAGE  52 


The  Federal  Reserve  Act 


Federal  Reserve  Board 

Sec.  10.  A  Federal  Reserve  Board  is  hereby  cre- 
ated which  shall  consist  of  seven  members,  including  the 
Secretary  of  the  Treasury  and  the  Comptroller  of  the 
Currency,  who  shall  be  members  ex-ofificio,  and  five  mem- 
bers appointed  by  the  President  of  the  United  States,  by 
and  with  the  advice  and  consent  of  the  Senate.  In  select- 
ing the  five  appointive  members  of  the  Federal  Reserve 
Board,  not  more  than  one  of  whom  shall  be  selected  from 
any  one  Federal  reserve  district,  the  President  shall  have 
due  regard  to  a  fair  representation  of  the  different  com- 
mercial, industrial  and  geographical  divisions  of  the 
country.  The  five  members  of  the  Federal  Reserve 
Board  appointed  by  the  President  and  confirmed  as  afore- 
said shall  devote  their  entire  time  to  the  business  of  the 
Federal  Reserve  Board  and  shall  each  receive  an  annual 
salary  of  $12,000,  payable  monthly  together  with  actual 
necessary  traveling  expenses,  and  the  Comptroller  of  the 
Currency,  as  ex-officio  member  of  the  Federal  Reserve 
Board,  shall,  in  addition  to  the  salary  now  paid  him  as 
Comptroller  of  the  Currency,  receive  the  sum  of  $7,000 
annually  for  his  services  as  a  member  of  said  Board. 

The  members  of  said  board,  the  Secretary  of  the 
Treasury,  the  Assistant  Secretaries  of  the  Treasury,  and 
the  Comptroller  of  the  Currency  shall  be  ineligible  dur- 


FAGE  53 


The  Federal  Reserve  Act 


ing  the  time  they  are  in  office  and  for  two  years  there- 
after to  hold  any  office,  position,  or  employment  in  any 
member  bank.  Of  the  five  members  thus  appointed  by 
the  President  at  least  two  shall  be  persons  experienced 
in  banking  or  finance.  One  shall  be  designated  by  the 
President  to  serve  for  two,  one  for  four,  one  for  six, 
one  for  eight,  and  one  for  ten  years,  and  thereafter  each 
member  so  appointed  shall  serve  for  a  term  of  ten  years 
unless  sooner  removed  for  cause  by  the  President.  Of 
the  five  persons  thus  appointed,  one  shall  be  designated 
by  the  President  as  governor  and  one  as  vice-governor 
of  the  Federal  Reserve  Board.  The  governor  of  the 
Federal  Reserve  Board,  subject  to  its  supervision,  shall 
be  the  active  executive  officer.  The  Secretary  of  the 
Treasury  may  assign  offices  in  the  Department  of  the 
Treasury  for  the  use  of  the  Federal  Reserve  Board. 
Each  member  of  the  Federal  Reserve  Board  shall  within 
fifteen  days  after  notice  of  appointment  make  and  sub- 
scribe to  the  oath  of  office. 

The  Federal  Reserve  Board  shall  have  power  to 
levy  semi-annually  upon  the  Federal  reserve  banks,  in 
proportion  to  their  capital  stock  and  surplus,  an  assess- 
ment sufficient  to  pay  its  estimated  expenses  and  the  sal- 
aries of  its  members  and  employees  for  the  half  year  suc- 
ceeding the  levying  of  such  assessment,  together  with 


FAGB  $i 


The  Federal  Reserve  Act 


any   deficit   carried    forward   from   the  preceding  half 
year. 

The  first  meeting  of  the  Federal  Reserve  Board 
shall  be  held  in  Washington,  District  of  Columbia,  as 
soon  as  may  be  after  the  passage  of  this  Act,  at  a  date 
to  be  fixed  by  the  Reserve  Bank  Organization  Commit- 
tee. The  Secretary  of  the  Treasury  shall  be  ex-officio 
chairman  of  the  Federal  Reserve  Board.  No  member  of 
the  Federal  Reserve  Board  shall  be  an  officer  or  director 
of  any  bank,  banking  institution,  trust  company,  or  Fed- 
eral reserve  bank  nor  hold  stock  in  any  bank,  banking 
institution,  or  trust  company;  and  before  entering  upon 
his  duties  as  a  member  of  the  Federal  Reserve  Board  he 
shall  certify  under  oath  to  the  Secretary  of  the  Treasury 
that  he  has  complied  with  this  requirement.  Whenever 
a  vacancy  shall  occur,  other  than  by  expiration  of  term, 
among  the  five  members  of  the  Federal  Reserve  Board 
appointed  by  the  President,  as  above  provided,  a  succes- 
sor shall  be  appointed  by  the  President,  with  the  advice 
and  consent  of  the  Senate,  to  fill  such  vacancy,  and  when 
appointed  he  shall  hold  office  for  the  unexpired  term  of 
the  member  whose  place  he  is  selected  to  fill. 

The  President  shall  have  power  to  fill  all  vacancies 
that  may  happen  on  the  Federal  Reserve  Board  during  the 
recess  of   the   Senate,  by  granting  commissions  which 


PAQB  55 


The  Federal  Reserve  Act 


shall  expire  thirty  days  after  the  next  session  of  the 
Senate  convenes. 

Nothing  in  this  Act  contained  shall  be  construed  as 
taking  away  any  powers  heretofore  vested  by  law  in  the 
Secretary  of  the  Treasury  which  relate  to  the  supervision, 
management,  and  control  of  the  Treasury  Department 
and  bureaus  under  such  department,  and  wherever  any 
power  vested  by  this  Act  in  the  Federal  Reserve  Board  or 
the  Federal  reserve  agent  appears  to  conflict  with  the 
powers  of  the  Secretary  of  the  Treasury,  such  powers 
shall  be  exercised  subject  to  the  supervision  and  control 
of  the  Secretary. 

The  Federal  Reserve  Board  shall  annually  make  a 
full  report  of  its  operations  to  the  Speaker  of  the  House 
of  Representatives,  who  shall  cause  the  same  to  be 
printed  for  the  information  of  the  Congress. 

Section  three  hundred  and  twenty- four  of  the  Re- 
vised Statutes  of  the  United  States  shall  be  amended  so 
as  to  read  as  follows :  There  shall  be  in  the  Department 
of  the  Treasury  a  bureau  charged  with  the  execution  of 
all  laws  passed  by  Congress  relating  to  the  issue  and 
regulation  of  national  currency  secured  by  United  States 
bonds  and,  under  the  general  supervision  of  the  Fed- 
eral Reserve  Board,  of  all  Federal  reserve  notes,  the 


PAGE  56 


The  Federal  Reserve  Act 


chief  officer  of  which  bureau  shall  be  called  the  Comp- 
troller of  the  Currency  and  shall  perform  his  duties  under 
the  general  directions  of  the  Secretary  of  the  Treasury. 

Sec.  11.     The    Federal    Reserve    Board    shall    be 
^authorized  and  empowered: 

(a)  To  examine  at  its  discretion  the  accounts, 
books  and  affairs  of  each  Federal  reserve  bank  and  of 
each  member  bank  and  to  require  such  statements  and 
reports  as  it  may  deem  necessary.  The  said  board  shall 
publish  once  each  week  a  statement  showing  the  condi- 
tion of  each  Federal  reserve  bank  and  a  consolidated 
statement  for  all  Federal  reserve  banks.  Such  statements 
shall  show  in  detail  the  assets  and  liabilities  of  the  Fed- 
eral reserve  banks,  single  and  combined,  and  shall  fur- 
nish full  information  regarding  the  character  of  the 
money  held  as  reserve  and  the  amount,  nature  and  ma- 
turities of  the  paper  and  other  investments  owned  or 
held  by  Federal  reserve  banks. 

(b)  To  permit,  or,  on  the  affirmative  vote  of  at 
least  five  members  of  the  Reserve  Board,  to  require  Fed- 
eral reserve  banks  to  rediscount  the  discounted  paper  of 
other  Federal  reserve  banks  at  rates  of  interest  to  be 
fixed  by  the  Federal  Reserve  Board. 


PAGE  57 


The  Federal  Reserve  Act 


(c)  To  suspend  for  a  period  not  exceeding  thirty 
days,  and  from  time  to  time  to  renew  such  suspension 
for  periods  not  exceeding  fifteen  days,  any  reserve  re- 
quirement specified  in  this  Act:  Provided,  That  it  shall 
establish  a  graduated  tax  upon  the  amounts  by  which 
the  reserve  requirements  of  this  Act  may  be  permitted  tq^ 
fall  below  the  level  hereinafter  specified :  And  provided 
further,  That  when  the  gold  reserve  held  against  Federal 
reserve  notes  falls  below  forty  per  centum,  the  Federal 
Reserve  Board  shall  establish  a  graduated  tax  of  not 
more  than  one  per  centum  per  annum  upon  such  defici- 
ency until  the  reserves  fall  to  thirty-two  and  one-half 
per  centum,  and  when  said  reserve  falls  below  thirty- 
two  and  one-half  per  centum,  a  tax  at  the  rate  increas- 
ingly of  not  less  than  one  and  one-half  per  centum 
per  annum  upon  each  two  and  one-half  per  centum  or 
fraction  thereof  that  such  reserve  falls  below  thirty-two 
and  one-half  per  centum.  The  tax  shall  be  paid  by  the 
reserve  bank,  but  the  reserve  bank  shall  add  an  amount 
equal  to  said  tax  to  the  rates  of  interest  and  discount 
fixed  by  the  Federal  Reserve  Board. 

(d)  To  supervise  and  regulate  through  the  bureau 
under  the  charge  of  the  Comptroller  of  the  Currency  the 
issue  and  retirement  of  Federal  reserve  notes,  and  to 
prescribe  rules  and  regulations  under  which  such  notes 


PAGE  5* 


The  Federal  Reserve  Act 


may  be  delivered  by  the  Comptroller  to  the  Federal  re- 
serve agents  applying  therefor. 

(e)  To  add  to  the  number  of  cities  classified  as  re- 
serve and  central  reserve  cities  under  existing  law  in 
which  national  banking  associations  are  subject  to  the 
reserve  requirements  set  forth  in  section  twenty  of  this 
Act;  or  to  reclassify  existing  reserve  and  central  reserve 
cities  or  to  terminate  their  designation  as  such. 

(f)  To  suspend  or  remove  any  officer  or  director 
of  any  Federal  reserve  bank,  the  cause  of  such  removal 
to  be  forthwith  communicated  in  writing  by  the  Federal 
Reserve  Board  to  the  removed  officer  or  director  and  to 
said  bank. 

(g)  To  require  the  writing  off  of  doubtful  or 
worthless  assets  upon  the  books  and  balance  sheets  of 
Federal  reserve  banks. 

(h)  To  suspend,  for  the  violation  of  any  of  the 
provisions  of  this  Act,  the  operations  of  any  Federal 
reserve  bank,  to  take  possession  thereof,  administer  the 
same  during  the  period  of  suspension,  and,  when  deemed 
advisable,  to  liquidate  or  reorganize  such  bank. 

(i)  To  require  bonds  of  Federal  reserve  agents,  to 
make  regulations  for  the  safeguarding  of  all  collateral, 


PAGE  S9 


The  Federal  Reserve  Act 


bonds,  Federal  reserve  notes,  money  or  property  of  any 
kind  deposited  in  the  hands  of  such  agents,  and  said 
board  shall  perform  the  duties,  functions,  or  services 
specified  in  this  Act,  and  make  all  rules  and  regulations 
necessary  to  enable  said  board  effectively  to  perform  the 
same. 

(j)  To  exercise  general  supervision  over  said  Fed- 
eral reserve  banks. 

(k)  To  grant  by  special  permit  to  national  banks 
applying  therefor,  when  not  in  contravention  of  State 
or  local  law,  the  right  to  act  as  trustee,  executor,  admin- 
istrator, or  registrar  of  stocks  and  bonds  under  such  rules 
and  regulations  as  the  said  board  may  prescribe. 

(1)  To  employ  such  attorneys,  experts,  assistants, 
clerks,  or  other  employees  as  may  be  deemed  necessary 
to  conduct  the  business  of  the  board.  All  salaries  and 
fees  shall  be  fixed  in  advance  by  said  board  and  shall  be 
paid  in  the  same  manner  as  the  salaries  of  the  members 
of  said  board.  All  such  attorneys,  experts,  assistants, 
clerks,  and  other  employees  shall  be  appointed  without 
regard  to  the  provisions  of  the  Act  of  January  sixteenth, 
eighteen  hundred  and  eighty-three  (volume  twenty-two. 
United  States  Statutes  at  Large,  page  four  hundred  and 
three),  and  amendments  thereto,  or  any  rule  or  regula- 


F AGE  60 


The  Federal  Reserve  Act 


tion  made  in  pursuance  thereof:  Provided,  That  noth- 
ing herein  shall  prevent  the  President  from  placing  said 
employees  in  the  classified  service. 

Federal  Advisory  Council 

Sec.  12.  There  is  hereby  created  a  Federal  Advis- 
ory Council,  which  shall  consist  of  as  many  members  as 
there  are  Federal  reserve  districts.  Each  Federal  re- 
serve bank  by  its  board  of  directors  shall  annually  select 
from  its  own  Federal  reserve  district  one  member  of 
said  council,  who  shall  receive  such  compensation  and 
allowances  as  may  be  fixed  by  his  board  of  directors  sub- 
ject to  the  approval  of  the  Federal  Reserve  Board.  The 
meetings  of  said  advisory  council  shall  be  held  at  Wash- 
ington, District  of  Columbia,  at  least  four  times  each 
year,  and  oftener  if  called  by  the  Federal  Reserve  Board. 
The  council  may,  in  addition  to  the  meetings  above  pro- 
vided for,  hold  such  other  meetings  in  Washington,  Dis- 
trict of  Columbia,  or  elsewhere,  as  it  may  deem  neces- 
sary, may  select  its  own  officers  and  adopt  its  own 
methods  of  procedure,  and  a  majority  of  its  members 
shall  constitute  a  quorum  for  the  transaction  of  business. 
Vacancies  in  the  council  shall  be  filled  by  the  respective 
reserve  banks,  and  members  selected  to  fill  vacancies 
shall  serve  for  the  unexpired  term. 

PAGE  6i 


The  Federal  Reserve  Act 


The  Federal  Advisory  Council  shall  have  power,  by 
itself  or  through  its  officers,  (1)  to  confer  directly  v^rith 
the  Federal  Reserve  Board  on  general  business  condi- 
tions; (2)  to  make  oral  or  written  representations  con- 
cerning matters  within  the  jurisdiction  of  said  board; 
(3)  to  call  for  information  and  to  make  recommenda- 
tions in  regard  to  discount  rates,  rediscount  business,  note 
issues,  reserve  conditions  in  the  various  districts,  the 
purchase  and  sale  of  gold  or  securities  by  reserve  banks, 
open-market  operations  by  said  banks,  and  the  general 
affairs  of  the  reserve  banking  system. 

Powers  of  Federal  Reserve  Banks 

Sec.  13.  Any  Federal  reserve  bank  may  receive 
from  any  of  its  member  banks,  and  from  the  United 
States,  deposits  of  current  funds  in  lawful  money, 
national-bank  notes,  Federal  reserve  notes,  or  checks 
and  drafts  upon  solvent  member  banks,  payable  upon 
presentation ;  or,  solely  for  exchange  purposes,  may 
receive  from  other  Federal  reserve  banks  deposits  of 
current  funds  in  lawful  money,  national-bank  notes,  or 
checks  and  drafts  upon  solvent  members  of  other 
Federal  reserve  banks,  payable  upon  presentation. 

Upon  the  indorsement  of  any  of  its  member  banks, 
with  a  waiver  of  demand,  notice  and  protest  by  such 
bank,  any  Federal  reserve  bank  may  discount  notes. 


PAGE  62 


The  Federal  Reserve  Act 


drafts,  and  bills  of  exchange  arising  out  of  actual  com- 
mericial  transactions;  that  is,  notes,  drafts,  and  bills 
of  exchange  issued  or  drawn  for  agricultural,  indus- 
trial, or  commercial  purposes,  or  the  proceeds  of  which 
have  been  used,  or  are  to  be  used,  for  such  purposes, 
the  Federal  Reserve  Board  to  have  the  right  to  deter- 
mine or  define  the  character  of  the  paper  thus  eligible 
for  discount,  within  the  meaning  of  this  Act.  Noth- 
ing in  this  Act  contained  shall  be  construed  to  prohibit 
such  notes,  drafts,  and  bills  of  exchange,  secured  by- 
staple  agricultural  products,  or  other  goods,  wares,  or 
merchandise  from  being  eligible  for  such  discount;  but 
such  definition  shall  not  include  notes,  drafts,  or  bills 
covering  merely  investments  or  issued  or  drawn  for 
the  purpose  of  carrying  or  trading  in  stocks,  bonds,  or 
other  investment  securities,  except  bonds  and  notes  of 
the  Government  of  the  United  States.  Notes,  drafts, 
and  bills  admitted  to  discount  under  the  terms  of  this 
paragraph  must  have  a  maturity  at  the  time  of  dis- 
count, of  not  more  than  ninety  days:  Provided,  That 
notes,  drafts,  and  bills  drawn  or  issued  for  agricultural 
purp>oses  or  based  on  live  stock  and  having  a  maturity 
not  exceeding  six  months  may  be  discounted  in  an  amount 
to  be  limited  to  a  percentage  of  the  capital  of  the  Federal 
reserve  bank,  to  be  ascertained  and  fixed  by  the  Federal 
Reserve  Board. 


PAGE  63 


The  Federal  Reserve  Act 


Any  Federal  reserve  bank  may  discount  acceptances 
which  are  based  on  the  importation  or  exportation  of 
goods  and  which  have  a  maturity  at  time  of  discount  of 
not  more  than  three  months,  and  indorsed  by  at  least  one 
member  bank.  The  amount  of  acceptances  so  discounted 
shall  at  no  time  exceed  one-half  the  paid-up  capital 
stock  and  surplus  of  the  bank  for  which  the  rediscounts 
are  made. 

The  aggregate  of  such  notes  and  bills  bearing  the 
signature  or  indorsement  of  any  one  person,  company, 
firm,  or  corporation  rediscounted  for  any  one  bank  shall 
at  no  time  exceed  ten  per  centum  of  the  unimpaired 
capital  and  surplus  of  said  bank ;  but  this  restriction  shall 
not  apply  to  the  discount  of  bills  of  exchange  drawn  in 
good  faith  against  actually  existing  values. 

Any  member  bank  may  accept  drafts  or  bills  of  ex- 
change drawn  upon  it  and  growing  out  of  transactions 
involving  the  importation  or  exportation  of  goods  hav- 
ing not  more  than  six  months  sight  to  run ;  but  no  bank 
shall  accept  such  bills  to  an  amount  equal  at  any  time 
in  the  aggregate  to  more  than  one-half  its  paid-up  capital 
stock  and  surplus. 

Section  fifty-two  hundred  and  two  of  the  Revised 
Statutes  of  the  United  States  is  hereby  amended  so  as 


PAGE  64 


The  Federal  Reserve  Act 


to  read  as  follows :  No  national  banking  association  shall 
at  any  time  be  indebted,  or  in  any  way  liable,  to  an 
amount  exceeding  the  amount  of  its  capital  stock  at  such 
time  actually  paid  in  and  remaining  undiminished  by 
losses  or  otherwise,  except  on  account  of  demands  of  the 
nature  following: 

First.     Notes  of  circulation. 

Second.  Moneys  deposited  with  or  collected  by  the 
association. 

Third.  Bills  of  exchange  or  drafts  drawn  against 
money  actually  on  deposit  to  the  credit  of  the  association, 
or  due  thereto. 

Fourth.  Liabilities  to  the  stockholders  of  the  as- 
sociation for  dividends  and  reserve  profits. 

Fifth.  Liabilities  incurred  under  the  provisions  of 
the  Federal  Reserve  Act. 

The  rediscount  by  any  Federal  reserve  bank  of  any 
bills  receivable  and  of  domestic  and  foreign  bills  of  ex- 
change, and  of  acceptances  authorized  by  this  Act,  shall 
be  subject  to  such  restrictions,  limitations,  and  regula- 
tions as  may  be  imposed  by  the  Federal  Reserve  Board. 


PAGE  6s 


The  Federal  Reserve  Act 


Open  Market  Operations 

Sec.  14.  Any  Federal  reserve  bank  may,  under 
rules  and  regulations  prescribed  by  the  Federal  Reserve 
Board,  purchase  and  sell  in  the  open  market,  at  home 
or  abroad,  either  from  or  to  domestic  or  foreign  banks, 
firms,  corporations,  or  individuals,  cable  transfers  and 
bankers'  acceptances  and  bills  of  exchange  of  the  kinds 
and  maturities  by  this  Act  made  eligible  for  rediscount, 
with  or  without  the  indorsement  of  a  member  bank. 

Every  Federal  reserve  bank  shall  have  power: 

(a)  To  deal  in  gold  coin  and  bullion  at  home  or 
abroad,  to  make  loans  thereon,  exchange  Federal  reserve 
notes  for  gold,  gold  coin,  or  gold  certificates,  and  to  con- 
tract for  loans  of  gold  coin  or  bullion,  giving  therefor, 
when  necessary,  acceptable  security,  including  the  hy- 
pothecation of  United  States  bonds  or  other  securities 
which  Federal  reserve  banks  are  authorized  to  hold ; 

(b)  To  buy  and  sell,  at  home  or  abroad,  bonds  and 
notes  of  the  United  States,  and  bills,  notes,  revenue 
bonds,  and  warrants  with  a  maturity  from  date  of  pur- 
chase of  not  exceeding  six  months,  issued  in  anticipation 
of  the  collection  of  taxes  or  in  anticipation  of  the  receipt 
of  assured  revenues  by  any  State,  county,  district,  po- 
litical  subdivision,    or   municipality   in   the   continental 

m^-^r-^  -       ^ 

PAGE  66 


The  Federal  Reserve  Act 


distj-icts,  such  purchases  to  be  made  in  accordance  with 
rules  and  regulations  prescribed  by  the  Federal  Reserve 
Board ; 

(c)  To  purchase  from  member  banks  and  to  sell, 
with  or  without  its  indorsement,  bills  of  exchange  arising 
out  of  commercial  transactions,  as  hereinbefore  defined: 

(d)  To  establish  from  time  to  time,  subject  to  re- 
view and  determination  of  the  Federal  Reserve  Board, 
rates  of  discount  to  be  charged  by  the  Federal  reserve 
bank  for  each  class  of  paper,  which  shall  be  fixed  with 
a  view  of  accommodating  commerce  and  business; 

(e)  To  establish  accounts  with  other  Federal  re- 
serve banks  for  exchange  purposes  and,  with  the  consent 
of  the  Federal  Reserve  Board,  to  open  and  maintain 
banking  accounts  in  foreign  countries,  appoint  corre- 
spondents, and  establish  agencies  in  such  countries  where- 
soever it  may  deem  best  for  the  purpose  of  purchasing, 
selling,  and  collecting  bills  of  exchange,  and  to  buy  and 
sell,  with  or  without  its  indorsement,  through  such  corre- 
spondents or  agencies,  bills  of  exchange  arising  out  of 
actual  commercial  transactions  which  have  not  more 
than  ninety  days  to  run  and  which  bear  the  signature  of 
two  or  more  responsible  parties. 


PAGE  67 


The  Federal  Reserve  Act 


Government  Deposits 

Sec.  15.  The  moneys  held  in  the  general  fund  of 
the  Treasury,  except,  the  five  per  centum  fund  for  the 
redemption  of  outstanding  national-bank  notes  and  the 
funds  provided  in  this  Act  for  the  redemption  of  Federal 
reserve  notes,  may,  upon  the  direction  of  the  Secretary 
of  the  Treasury,  be  deposited  in  Federal  reserve  banks, 
which  banks,  when  required  by  the  Secretary  of  the 
Treasury,  shall  act  as  fiscal  agents  of  the  United  States ; 
and  the  revenues  of  the  Government  or  any  part  thereof 
may  be  deposited  in  such  banks,  and  disbursements  may 
be  made  by  checks  drawn  against  such  deposits. 

No  public  funds  of  the  Philippine  Islands,  or  of  the 
postal  savings,  or  any  Government  funds,  shall  be  de- 
posited in  the  continental  United  States  in  any  bank  not 
belonging  to  the  system  established  by  this  Act:  Pro- 
vided, however,  That  nothing  in  this  Act  shall  be  con- 
strued to  deny  the  right  of  the  Secretary  of  the  Treasury 
to  use  member  banks  as  depositories. 

Note  Issues 

Sec.  16.  Federal  reserve  notes,  to  be  issued  at 
the  discretion  of  the  Federal  Reserve  Board  for  the  pur- 
pose of  making  advances  to  Federal  reserve  banks 
through  the  Federal  reserve  agents  as  hereinafter  set 

PAGE  68 


The  Federal  Reserve  Act 


forth  and  for  no  other  purpose,  are  hereby  authorized. 
The  said  notes  shall  be  obligations  of  the  United  States 
and  shall  be  receivable  by  all  national  and  member  banks 
and  Federal  reserve  banks  and  for  all  taxes,  customs, 
and  other  public  dues.  They  shall  be  redeemed  in  gold 
on  demand  at  the  Treasury  Department  of  the  United 
States,  in  the  city  of  Washington,  District  of  Columbia, 
or  in  gold  or  lawful  money  at  any  Federal  reserve  bank. 

Any  Federal  reserve  bank  may  make  application  to 
the  local  Federal  reserve  agent  for  such  amount  of  the 
Federal  reserve  notes  hereinbefore  provided  for  as  it 
may  require.  Such  application  shall  be  accompanied  with 
a  tender  to  the  local  Federal  reserve  agent  of  collateral 
in  amount  equal  to  the  sum  of  the  Federal  reserve  notes 
thus  applied  for  and  issued  pursuant  to  such  application. 
The  collateral  security  thus  offered  shall  be  notes  and 
bills.  accq;ited  for  rediscount  under  the  provisions  of 
section  thirteen  of  this  Act,  and  the  Federal  reserve 
agent  shall  each  day  notify  the  Federal  Reserve  Board 
of  all  issues  and  withdrawals  of  Federal  reserve  notes 
to  and  by  the  Federal  reserve  bank  to  which  he  is  ac- 
credited. The  said  Federal  Reserve  Board  may  at  any 
time  call  upon  a  Federal  reserve  bank  for  additional 
security  to  protect  the  Federal  reserve  notes  issued  to  it. 


PAGE  69 


The  Federal  Reserve  Act 


Every  Federal  reserve  bank  shall  maintain  reserves 
in  gold  or  lawful  money  of  not  less  than  thirty-five  per 
centum  against  its  deposits  and  reserves  in  gold  of  not 
less  than  forty  per  centum  against  its  Federal  reserve 
notes  in  actual  circulation,  and  not  offset  by  gold  or 
lawful  money  deposited  with  the  Federal  reserve  agent. 
.Notes  so  paid  out  shall  bear  upon  their  faces  a  distinctive 
letter  and  serial  number,  which  shall  be  assigned  by  the 
^Federal  Reserve  Board  to  each  Federal  reserve  bank. 
Whenever  Federal  reserve  notes  issued  through  one  Fed- 
eral reserve  bank  shall  be  received  by  another  Federal 
reserve  bank  they  shall  be  promptly  returned  for  credit 
or  redemption  to  the  Federal  reserve  bank  through  which 
they  were  originally  issued.  No  Federal  reserve  bank 
shall  pay  out  notes  issued  through  another  under  penalty 
of  a  tax  of  ten  per  centum  upon  the  face  value  of  notes 
so  paid  out.  Notes  presented  for  redemption  at  the 
Treasury  of  the  United  States  shall  be  paid  out  of  the 
redemption  fund  and  returned  to  the  Federal  reserve 
banks  through  which  they  were  originally  issued,  and 
thereupon  such  Federal  reserve  bank  shall,  upon  demand 
of  the  Secretary  of  the  Treasury,  reimburse  such  re- 
demption fund  in  lawful  money,  or,  if  such  Federal  re- 
serve notes  have  been  redeemed  by  the  Treasurer  in 
gold  or  gold  certificates,  then  such  funds  shall  be  reim- 


PAGB  70 


The  Federal  Reserve  Act 


bursed  to  the  extent  deemed  necessary  by  the  Secre- 
tary of  the  Treasury  in  gold  or  gold  certificates,  and 
such  Federal  reserve  bank  shall,  so  long  as  any  of  its 
Federal  reserve  notes  remain  outstanding,  maintain  with 
the  Treasurer  in  gold  an  amount  sufficient  in  the  judg- 
ment of  the  Secretary  to  provide  for  all  redemptions  to 
be  made  by  the  Treasurer.  Federal  reserve  notes  re- 
ceived by  the  Treasury,  otherwise  than  for  redemption, 
may  be  exchanged  for  gold  out  of  the  redemption  fund 
hereinafter  provided  and  returned  to  the  reserve  bank 
through  which  they  were  originally  issued,  or  they  may 
be  returned  to  such  bank  for  the  credit  of  the  United 
States.  Federal  reserve  notes  unfit  for  circulation  shall 
be  returned  by  th^  Federal  reserve  agents  to  the  Comp- 
troller of  the  Currency  for  cancellation  and  destruction. 

The  Federaj  Reserve  Board  shall  require  each  Fed- 
eral reserve  bank  to  maintain  on  deposit  in  the  Treasury 
of  the  United  States  a  sum  in  gold  sufficient  in  the  judg- 
ment of  the  Secretary  of  the  Treasury  for  the  redemp- 
tion of  the  Federal  reserve  notes  issued  to  such  bank, 
but  in  no  event  less  than  five  per  centum;  but  such  de- 
posit of  gold  shall  be  counted  and  included  as  part  of 
the  forty  per  centum  reserve  hereinbefore  required.  The 
board  shall  have  the  right,  acting  through  the  Federal 
reserve  agent,  to  grant  in  whole  or  in  part  or  to  reject 


PAGE  71 


The  Federal  Reserve  Act 


entirely  the  application  of  any  Federal  reserve  bank  for 
Federal  reserve  notes;  but  to  the  extent  that  such  ap- 
plication may  be  granted  the  Federal  Reserve  Board 
shall,  through  its  local  Federal  reserve  agent,  supply 
Federal  reserve  notes  to  the  bank  so  applying,  and  such 
bank  shall  be  charged  with  the  amount  of  such  notes  and 
shall  pay  such  rate  of  interest  on  said  amount  as  may 
be  established  by  the  Federal  Reserve  Board,  and  the 
amount  of  such  Federal  reserve  notes  so  issued  to  any 
such  bank  shall,  upon  delivery,  together  with  such  notes 
of  such  Federal  reserve  bank  as  may  be  issued  under 
section  eighteen  of  this  Act  upon  security  of  United 
States  two  per  centum  Government  bonds,  become  a  first 
and  paramount  lien  on  all  the  assets  of  such  bank. 

Any  Federal  reserve  bank  may  at  any  time  reduce 
its  liability  for  outstanding  Federal  reserve  notes  by  de- 
positing, with  the  Federal  reserve  agent,  its  Federal 
reserve  notes,  gold,  gold  certificates,  or  lawful  money 
of  the  United  States.  Federal  reserve  notes  so  depos- 
ited shall  not  be  reissued,  except  upon  compliance  with 
the  conditions  of  an  original  issue.  ' 

The  Federal  reserve  agent  shall  hold  such  gold, 
gold  certificates,  or  lawful  money  available  exclusively 
for  exchange  for  the  outstanding  Federal  reserve  notes 


PAGE  72 


The  Federal  Reserve  Act 


when  offered  by  the  reserve  bank  of  which  he  is  a  di- 
rector. Upon  the  request  of  the  Secretary  of  the  Treas- 
ury the  Federal  Reserve  Board  shall  require  the  Federal 
reserve  agent  to  transmit  so  much  of  said  gold  to  the 
Treasury  of  the  United  States  as  may  be  required  for 
the  exclusive  purpose  of  the  redemption  of  such  notes. 

Any  Federal  reserve  bank  may  at  its  discretion  with- 
draw collateral  deposited  with  the  local  Federal  reserve 
agent  for  the  protection  of  its  Federal  reserve  notes  de- 
posited with  it  and  shall  at  the  same  time  substitute 
therefor  other  like  collateral  of  equal  amount  with  the 
approval  of  the  Federal  reserve  agent  under  regulations 
to  be  prescribed  by  the  Federal  Reserve  Board. 

In  order  to  furnish  suitable  notes  for  circulation  as 
Federal  reserve  notes,  the  Comptroller  of  the  Currency 
shall,  under  the  direction  of  the  Secretary  of  the  Treas- 
ury, cause  plates  and  dies  to  be  engraved  in  the  best 
manner  to  guard  against  counterfeits  and  fraudulent 
alterations,  and  shall  have  printed  therefrom  and  num- 
bered such  quantities  of  such  notes,  of  the  denominations 
of  $5,  $10,  $20,  $50,  $100,  as  may  be  required  to  supply 
the  Federal  reserve  banks.  Such  notes  shall  be  in  form 
and  tenor  as  directed  by  the  Secretary  of  the  Treasury 
under  the  provisions  of  this  Act  and  shall  bear  the 


PAGE  72 


The  Federal  Reserve  Act 


distinctive  numbers  of  the  several  Federal  reserve  banks 
through  which  they  are  issued. 

When  such  notes  have  been  prepared,  they  shall  be 
deposited  in  the  Treasury,  or  in  the  subtreasury  or  mint 
of  the  United  States  nearest  the  place  of  business  of 
each  Federal  reserve  bank  and  shall  be  held  for  the  use 
of  such  bank  subject  to  the  order  of  the  Comptroller  of 
the  Currency  for  their  delivery,  as  provided  by  this  Act. 

The  plates  and  dies  to  be  procured  by  the  Comp- 
troller of  the  Currency  for  the  printing  of  such  circulat- 
ing notes  shall  remain  under  his  control  and  direction, 
and  the  expenses  necessarily  incurred  in  executing  the 
laws  relating  to  the  procuring  of  such  notes,  and  all  other 
expenses  incidental  to  their  issue  and  retirement,  shall 
be  paid  by  the  Federal  reserve  banks,  and  the  Federal 
Reserve  Board  shall  include  in  its  estimate  of  expenses 
levied  against  the  Federal  reserve  banks  a  sufficient 
amount  to  cover  the  expenses  herein  provided  for. 

The  examination  of  plates,  dies,  bed  pieces,  and  so 
forth,  and  regulations  relating  to  such  examination  of 
plates,  dies,  and  so  forth,  of  national-bank  notes  pro- 
vided for  in  section  fifty-one  hundred  and  seventy-four 
Revised  Statutes,  is  hereby  extended  to  include  notes 
herein  provided  for. 


PAGE  74 


The  Federal  Reserve  Act 


Any  appropriation  heretofore  made  out  of  the  gen- 
eral funds  of  the  Treasury  for  engraving  plates  and  dies, 
the  purchase  of  distinctive  paper,  or  to  cover  any  other 
expense  in  connection  with  the  printing  of  national-bank 
notes  or  notes  provided  for  by  the  Act  of  May  thirtieth, 
nineteen  hundred  and  eight,  and  any  distinctive  paper 
that  may  be  on  hand  at  the  time  of  the  passage  of  this 
Act  may  be  used  in  the  discretion  of  the  Secretary  for 
the  purposes  of  this  Act,  and  should  the  appropriations 
heretofore  made  be  insufficient  to  meet  the  requirements 
of  this  Act  in  addition  to  circulating  notes  provided  for 
by  existing  law,  the  Secretary  is  hereby  authorized  to 
use  so  much  of  any  funds  in  the  Treasury  not  otherwise 
appropriated  for  the  purpose  of  furnishing  the  notes 
aforesaid :  Provided,  however,  That  nothing  in  this  sec- 
tion contained  shall  be  construed  as  exempting  national 
banks  or  Federal  reserve  banks  from  their  liability  to 
reimburse  the  United  States  for  any  expenses  incurred 
in  printing  and  issuing  circulating  notes. 

Every  Federal  reserve  bank  shall  receive  on  deposit 
at  par  from  member  banks  or  from  Federal  reserve  banks 
checks  and  drafts  drawn  upon  any  of  its  depositors,  and 
when  remitted  by  a  federal  reserve  bank,  checks  and 
drafts  drawn  by  any  depositor  in  any  other  Federal 
reserve  bank  or  member  bank  upon  funds  to  the  credit 


PAGE  75 


The  Federal  Reserve  Act 


of  said  depositor  in  said  reserve  bank  or  member  bank. 
Nothing  herein  contained  shall  be  construed  as  prohibit- 
ing a  member  bank  from  charging  its  actual  expense  in- 
curred in  collecting  and  remitting  funds,  or  for  exchange 
sold  to  its  patrons.  The  Federal  Reserve  Board  shall, 
by  rule,  fix  the  charges  to  be  collected  by  the  member 
banks  from  its  patrons  whose  checks  are  cleared  through 
the  Federal  reserve  bank  and  the  charge  which  may 
be  imposed  for  the  service  of  clearing  or  collection  ren- 
dered by  the  Federal  reserve  bank. 

The  Federal  Reserve  Board  shall  make  and  promul- 
gate from  time  to  time  regulations  governing  the  transfer 
of  funds  and  charges  therefor  among  Federal  reserve 
banks  and  their  branches,  and  may  at  its  discretion  exer- 
cise the  functions  of  a  clearing  house  for  such  Federal 
reserve  banks,  or  may  designate  a  Federal  reserve  bank 
to  exercise  such  functions,  and  may  also  require  each 
such  bank  to  exercise  the  functions  of  a  clearing  house 
for  its  member  banks. 

Sec.  17.  So  much  of  the  provisions  of  section 
fifty-one  hundred  and  fifty-nine  of  the  Revised  Statutes 
of  the  United  States,  and  section  four  of  the  Act  of 
June  twentieth,  eighteen  hundred  and  seventy-four,  and 
section  eight  of  the  Act  of  July  twelfth,  eighteen  hun- 


PAGE  76 


The  Federal  Reserve  Act 


dred  and  eighty-two,  and  of  any  other  provisions  of 
existing  statutes  as  require  that,  before  any  national 
banking  association  shall  be  authorized  to  commence 
banking  business,  it  shall  transfer  and  deliver  to  the 
Treasurer  of  the  United  States  a  stated  amount  of 
United  States  registered  bonds  is  hereby  repealed. 

Refunding  Bonds  j?*^ 

Sec.  18.  After  two  years  from  the  passage  of  this 
Act,  and  at  any  time  during  a  period  of  twenty  years 
thereafter,  any  member  bank  desiring  to  retire  the  whole 
or  any  part  of  its  circulating  notes,  may  file  with  the 
Treasurer  of  the  United  States  an  application  to  sell  for 
its  account,  at  par  and  accrued  interest.  United  States 
bonds  securing  circulation  to  be  retired. 

The  Treasurer  shall,  at  the  end  of  each  quarterly 
period,  furnish  the  Federal  Reserve  Board  with  a  list 
of  such  applications,  and  the  Federal  Reserve  Board 
may,  in  its  discretion,  require  the  Federal  reserve  banks 
to  purchase  such  bonds  from  the  banks  whose  applica- 
tions have  been  filed  with  the  Treasurer  at  least  ten  days 
before  the  end  of  any  quarterly  period  at  which  the 
Federal  Reserve  Board  may  direct  the  purchase  to  be 
made:      Provided,  That  Federal  reserve  banks  shall  not 

PAGE  77 


The  Federal  Reserve  Act 


be  permitted  to  purchase  an  amount  to  exceed  $25,000,- 
000  of  such  bonds  in  any  one  year,  and  which  amount 
shall  include  bonds  acquired  under  section  four  of  this 
Act  by  the  Federal  reserve  bank.  Provided  further,  That 
the  Federal  Reserve  Board  shall  allot  to  each  Federal 
reserve  bank  such  proportion  of  such  bonds  as  the  capital 
and  surplus  of  such  bank  shall  bear  to  the  aggregate  capi- 
tal and  surplus  of  all  the  Federal  reserve  banks. 

Upon  notice  from  the  Treasurer  of  the  amount  of 
bonds  so  sold  for  its  account,  each  member  bank  shall 
duly  assign  and  transfer,  in  writing,  such  bonds  to  the 
Federal  reserve  bank  purchasing  the  same,  and  such 
Federal  reserve  bank  shall,  thereupon,  deposit  lawful 
money  with  the  Treasurer  of  the  United  States  for  the 
purchase  price  of  such  bonds,  and  the  Treasurer  shall 
pay  to  the  member  bank  selling  such  bonds  any  balance 
due  after  deducting  a  sufficient  sum  to  redeem  its  out- 
standing notes  secured  by  such  bonds,  which  notes  shall 
be  canceled  and  permanently  retired  when  redeemed. 

The  Federal  reserve  banks  purchasing  such  bonds 
shall  be  permitted  to  take  out  an  amount  of  circulating 
notes  equal  to  the  par  value  of  such  bonds. 

Upon  the  deposit  with  the  Treasurer  of  the  United 
States  of  bonds  so  purchased,  or  any  bonds  with  the 
circulating  privilege  acquired  under  section  four  of  this 


PAGE  7% 


The  Federal  Reserve  Act 


Act,  any  Federal  reserve  bank  making  such  deposit  in 
the  manner  provided  by  existing  law,  shall  be  entitled 
to  receive  from  the  Comptroller  of  the  Currency  circulat- 
ing notes  in  blank,  registered  and  countersigned  as  pro- 
vided by  law,  equal  in  amount  to  the  par  value  of  the 
bonds  so  deposited.  Such  notes  shall  be  the  obligations 
of  the  Federal  reserve  bank  procuring  the  same,  and 
shall  be  in  form  prescribed  by  the  Secretary  of  the  Treas- 
ury, and  to  the  same  tenor  and  effect  as  national-bank 
notes  now  provided  by  law.  They  shall  be  issued  and  re- 
deemed under  the  same  terms  and  conditions  as  national- 
bank  notes  except  that  they  shall  not  be  limited  to  the 
amount  of  the  capital  stock  of  the  Federal  reserve  bank 
issuing  them. 

Upon  application  of  any  Federal  reserve  bank,  ap- 
proved by  the  Federal  Reserve  Board,  the  Secretary  of 
the  Treasury  may  issue,  in  exchange  for  United  States 
two  per  centum  gold  bonds  bearing  the  circulation  privi- 
lege, but  against  which  no  circulation  is  outstanding,  one- 
year  gold  notes  of  the  United  States  without  the  circula- 
tion privilege,  to  an  amount  not  to  exceed  one  half  of 
the  two  per  centum  bonds  so  tendered  for  exchange,  and 
thirty-year  three  per  centum  gold  bonds  without  the  cir- 
culation privilege  for  the  remainder  of  the  two  per 
centum  bonds  so  tendered:    Provided,  That  at  the  time 

PAGE  79 


The  Federal  Reserve  Act 


of  such  exchange  the  Federal  reserve  bank  obtaining 
such  one-year  gold  notes  shall  enter  into  an  obligation 
with  the  Secretary  of  the  Treasury  binding  itself  to  pur- 
chase from  the  United  States  for  gold  at  the  maturity 
of  such  one-year  notes,  an  amount  equal  to  those  deliver- 
ed in  exchange  for  such  bonds,  if  so  requested  by  the 
Secretary,  and  at  each  maturity  of  one-year  notes  so 
purchased  by  such  Federal  reserve  bank,  to  purchase 
from  the  United  States  such  an  amount  of  one-year 
notes  as  the  Secretary  may  tender  to  such  bank,  not  to 
exceed  the  amount  issued  to  such  bank  in  the  first  in- 
stance, in  exchange  for  the  two  per  centum  United  States 
gold  bonds ;  said  obligation  to  purchase  at  maturity  such 
notes  shall  continue  in  force  for  a  period  not  to  exceed 
thirty  years. 

For  the  purpose  of  making  the  exchange  herein 
provided  for,  the  Secretary  of  the  Treasury  is  authorized 
to  issue  at  par  Treasury  notes  in  coupon  or  registered 
form  as  he  may  prescribe  in  denominations  of  one  hun- 
dred dollars,  or  any  multiple  thereof,  bearing  interest 
at  the  rate  of  three  per  centum  per  annum,  payable 
quarterly,  such  Treasury  notes  to  be  payable  not  more 
than  one  year  from  the  date  of  their  issue  in  gold  coin 
of  the  present  standard  value,  and  to  be  exempt  as  to 
principal  and  interest   from  the  payment  of  all  taxes 


PAGE  80 


The  Federal  Reserve  Act 


and  duties  of  the  United  States  except  as  provided  by 
this  Act,  as  well  as  from  taxes  in  any  form  by  or  under 
State,  municipal,  or  local  authorities.  And  for  the  same 
purpose,  the  Secretary  is  authorized  and  empowered  to 
issue  United  States  gold  bonds  at  par,  bearing  three  per 
centum  interest,  payable  thirty  years  from  date  of  issue, 
such  bonds  to  be  of  the  same  general  tenor  and  effect  and 
to  be  issued  under  the  same  general  terms  and  conditions 
as  the  United  States  three  per  centum  bonds  without  the 
circulation  privilege  now  issued  and  outstanding. 

Upon  application  of  any  Federal  reserve  bank,  ap- 
proved by  the  Federal  Reserve  Board,  the  Secretary  may 
issue  at  par  such  three  per  centum  bonds  in  exchange 
for  the  one-year  gold  notes  herein  provided  for. 

Bank  Reserves 

Sec.  19.  Demand  deposits  within  the  meaning  of 
this  Act  shall  comprise  all  deposits  payable  within  thirty 
days,  and  time  deposits  shall  comprise  all  deposits  pay- 
able after  thirty  days,  and  all  savings  accounts  and  cer- 
tificates of  deposit  which  are  subject  to  not  less  than 
thirty  days'  notice  before  payment. 

When  the  Secretary  of  the  Treasury  shall  have 
officially  announced,  in  such  manner  as  he  may  elect,  the 
establishment  of  a  Federal  reserve  bank  in  any  district, 

PAGE  8i 


The  Federal  Reserve  Act 


every  subscribing  member  bank  shall  establish  and  main- 
tain reserves  as  follows: 

(a)  A  bank  not  in  a  reserve  or  central  reserve  city 
as  now  or  hereafter  defined  shall  hold  and  maintain 
reserves  equal  to  twelve  per  centum  of  the  aggregate 
amount,  of  its  demand  deposits  and  five  per  centum  of 
its  time  deposits,  as  follows : 

In  its  vaults  for  a  period  of  thirty-six  months  after 
said  date  five-twelfths  thereof  and  permanently  there- 
after four-twelfths. 

In  the  Federal  reserve  bank  of  its  district,  for  a 
period  of  twelve  months  after  said  date,  two-twelfths, 
and  for  each  succeeding  six  months  an  additional  one- 
twelfth,  until  five-twelfths  have  been  so  deposited,  which 
shall  be  the  amount  permanently  required. 

For  a  period  of  thirty-six  months  after  said  date  the 
balance  of  the  reserves  may  be  held  in  its  own  vaults,  or 
in  the  Federal  reserve  bank,  or  in  national  banks  in  re- 
serve or  central  reserve  cities  as  now  defined  by  law. 

After  said  thirty-six  months'  period  said  reserves, 
other  than  those  hereinbefore  required  to  be  held  in  the 
vaults  of  the  member  bank  and  in  the  Federal  reserve 
bank,  shall  be  held  in  the  vaults  of  the  member  bank  or 


PAGE  82 


The  Federal  Reserve  Act 


in  the  Federal  reserve  bank,  or  in  both,  at  the  option  of 
the  member  bank. 

(b)  A  bank  in  a  reserve  city,  as  now  or  hereafter 
defined,  shall  hold  and  maintain  reserves  equal  to  fifteen 
per  centum  of  the  aggregate  amount  of  its  demand  de- 
posits and  five  per  centum  of  its  time  deposits,  as  follows : 

In  its  vaults  for  a  period  of  thirty-six  months  after 
said  date  six-fifteenths  thereof,  and  permanently  there- 
after five-fifteenths. 

In  the  Federal  reserve  bank  of  its  district  for  a 
period  of  twelve  months  after  the  date  aforesaid  at  least 
three-fifteenths,  and  for  each  succeeding  six  months  an 
additional  one-fifteenth,  until  six-fifteenths  have  been  so 
deposited,  which  shall  be  the  amount  permanently 
required. 

For  a  period  of  thirty-six  months  after  said  date, 
the  balance  of  the  reserves  may  be  held  in  its  own  vaults, 
or  in  the  Federal  reserve  bank,  or  in  national  banks  in 
reserve  or  central  reserve  cities  as  now  defined  by  law. 

After  said  thirty-six  months'  period  all  of  said  re- 
serves, except  those  hereinbefore  required  to  be  held 
permanently  in  the  vaults  of  the  member  bank  and  in 
the  Federal  reserve  bank,  shall  be  held  in  its  vaults  or 


PAGE  83 


The  Federal  Reserve  Act 


in  the  Federal  reserve  bank,  or  in  both,  at  the  option  of 
the  member  bank. 

(c)  A  bank  in  a  central  reserve  city,  as  now  or 
hereafter  defined,  shall  hold  and  maintain  a  reserve  equal 
to  eighteen  per  centum  of  the  aggregate  amount  of  its 
demand  deposits  and  five  per  centum  of  its  time  deposits, 
as  follows: 

In  its  vaults  six-eighteenths  thereof. 

In  the  Federal  reserve  bank  seven-eighteenths. 

The  balance  of  said  reserves  shall  be  held  in  its  own 
vaults  or  in  the  Federal  reserve  bank,  at  its  option. 

Any  Federal  reserve  bank  may  receive  from  the 
member  banks  as  reserves,  not  exceeding  one-half  of 
each  installment,  eligible  paper  as  described  in  section 
fourteen  properly  indorsed  and  acceptable  to  the  said 
reserve  bank. 

If  a  State  bank  or  trust  company  is  required  by  the 
law  of  its  State  to  keep  its  reserves  either  in  its  own 
vaults  or  with  another  State  bank  or  trust  company,  such 
reserve  deposits  so  kept  in  such  State  bank  or  trust  com- 
pany shall  be  construed,  within  the  meaning  of  this  sec- 
tion, as  if  they  were  reserve  deposits  in  a  national  bank 


PAGE  84 


The  Federal  Reserve  Act 


in  a  reserve  or  central  reserve  city  for  a  period  of  three 
years  after  the  Secretary  of  the  Treasury  shall  have  of- 
ficially announced  the  establishment  of  a  Federal  reserve 
bank  in  the  district  in  which  such  State  bank  or  trust 
company  is  situate. 

Except  as  thus  provided,  no  member  bank  shall  keep 
on  deposit  with  any  non-member  bank  a  sum  in  excess 
of  ten  per  centum  of  its  own  paid-up  capital  and  surplus. 
No  member  bank  shall  act  as  the  medium  or  agent  of  a 
non-member  bank  in  applying  for  or  receiving  discounts 
from  a  Federal  reserve  bank  under  the  provisions  of  this 
Act  except  by  permission  of  the  Federal  Reserve  Board. 

The  reserve  carried  by  a  member  bank  with  a  Fed- 
eral reserve  bank  may,  under  the  regulations  and  subject 
to  such  penalties  as  may  be  prescribed  by  the  Federal 
Reserve  Board,  be  checked  against  and  withdrawn  by 
such  member  bank  for  the  purpose  of  meeting  existing 
liabilities:  Provided,  however,  That  no  bank  shall  at 
any  time  make  new  loans  or  shall  pay  any  dividends  un- 
less and  until  the  total  reserve  required  by  law  is  fully 
restored. 

In  estimating  the  reserves  required  by  this  Act, 
the  net  balance  of  amounts  due  to  and  from  other  banks 
shall  be  taken  as  the  basis  for  ascertaining  the  deposits 


PAGE  85 


The  Federal  Reserve  Act 


against  which  reserves  shall  be  determined.  Balances 
in  reserve  banks  due  to  member  banks  shall,  to  the  ex- 
tent herein  provided,  be  counted  as  reserves. 

National  banks  located  in  Alaska  or  outside  the  con- 
tinental United  States  may  remain  non-member  banks, 
and  shall  in  that  event  maintain  reserves  and  comply 
with  all  the  conditions  now  provided  by  law  regulating 
them;  or  said  banks,  except  in  the  Philippine  Islands, 
may,  with  the  consent  of  the  Reserve  Board,  become 
member  banks  of  any  one  of  the  reserve  districts,  and 
shall,  in  that  event,  take  stock,  maintain  reserves,  and 
be  subject  to  all  the  other  provisions  of  this  Act. 

Sec.  20.  So  much  of  sections  two  and  three  of  the 
Act  of  June  twentieth,  eighteen  hundred  and  seventy- 
four,  entitled  '*An  Act  fixing  the  amount  of  United 
States  notes,  providing  for  a  redistribution  of  the  na- 
tional-bank currency,  and  for  other  purposes,"  as  pro- 
vides that  the  fund  deposited  by  any  national  banking 
association  with  the  Treasurer  of  the  United  States  for 
the  redemption  of  its  notes  shall  be  counted  as  a  part 
of  its  lawful  reserve  as  provided  in  the  Act  aforesaid 
is  hereby  repealed.  And  from  and  after  the  passage 
of  this  Act  such  fund  of  five  per  centum  shall  in  no 
case  be  counted  by  any  national  banking  association  as 
a  part  of  its  lawful  reserve. 


PAGE  86 


The  Federal  Reserve  Act 


Bank  Examinations 

Sec.  21.  Section  fifty-two  hundred  and  forty. 
United  States  Revised  Statutes,  is  amended  to  read  as 
follows : 

The  Comptroller  of  the  Currency,  with  the  approval 
of  the  Secretary  of  the  Treasury,  shall  appoint  examiners 
who  shall  examine  every  member  bank  at  least  twice  in 
each  calendar  year  and  oftener  if  considered  necessary: 
Provided,  however.  That  the  Federal  Reserve  Board  may 
authorize  examination  by  the  State  authorities  to  be  ac- 
cepted in  the  case  of  State  banks  and  trust  companies 
and  may  at  any  time  direct  the  holding  of  a  special  ex- 
amination of  State  banks  or  trust  companies  that  are 
stockholders  in  any  Federal  reserve  bank.  The  examiner 
making  the  examination  of  any  national  bank,  or  of  any 
other  member  bank,  shall  have  power  to  make  a  thorough 
examination  of  all  the  affairs  of  the  bank,  and  in  doing 
so  he  shall  have  power  to  administer  oaths  and  to  ex- 
amine any  of  the  officers  and  agents  thereof  under  oath 
and  shall  make  a  full  and  detailed  report  of  the  condi- 
tion of  said  bank  to  the  Comptroller  of  the  Currency. 

The  Federal  Reserve  Board,  upon  the  recommenda- 
tion of  the  Comptroller  of  the  Currency,  shall  fix  the 
salaries  of  all  bank  examiners  and  make  report  thereof 


PAGE  87 


The  Federal  Reserve  Act 


to  Congress.  The  expense  of  the  examinations  herein 
provided  for  shall  be  assessed  by  the  Comptroller  of  the 
Currency  upon  the  banks  examined  in  proportion  to  as- 
sets or  resources  held  by  the  banks  upon  the  date  of 
examination  of  the  various  banks. 

In  addition  to  the  examinations  made  and  conducted 
by  the  Comptroller  of  the  Currency,  every  Federal  re- 
serve bank  may,  with  the  approval  of  the  Federal  reserve 
agent  or  the  Federal  Reserve  Board,  provide  for  special 
examination  of  member  banks  within  its  district.  The 
expense  of  such  examinations  shall  be  borne  by  the  bank 
examined.  Such  examinations  shall  be  so  conducted  as 
to  inform  the  Federal  reserve  bank  of  the  condition  of 
its  member  banks  and  of  the  lines  of  credit  which  are 
being  extended  by  them.  Every  Federal  reserve  bank 
shall  at  all  times  furnish  to  the  Federal  Reserve  Board 
such  information  as  may  be  demanded  concerning  the 
condition  of  any  member  bank  within  the  district  of  the 
said  Federal  reserve  bank. 

No  bank  shall  be  subject  to  any  visitatorial  powers 
other  than  such  as  are  authorized  by  law,  or  vested  in 
the  courts  of  justice  or  such  as  shall  be  or  shall  have 
been  exercised  or  directed  by  Congress,  or  by  either 
House  thereof  or  by  any  committee  of  Congress  or  of 
either  House  duly  authorized. 


PAGE  88 


The  Federal  Reserve  Act 


The  Federal  Reserve  Board  shall,  at  least  once  each 
year,  order  an  examination  of  each  Federal  reserve 
bank,  and  upon  joint  application  of  ten  member  banks 
the  Federal  Reserve  Board  shall  order  a  special  exam- 
ination and  report  of  the  condition  of  any  Federal 
reserve  bank. 

Sec.  22.  No  member  bank  or  any  officer,  director, 
or  employee  thereof  shall  hereafter  make  any  loan  or 
grant  any  gratuity  to  any  bank  examiner.  Any  bank 
officer,  director,  or  employee  violating  this  provision 
shall  be  deemed  guilty  of  a  misdemeanor  and  shall  be 
imprisoned  not  exceeding  one  year  or  fined  not  more 
than  $5,000,  or  both;  and  may  be  fined  a  further  sum 
equal  to  the  money  so  loaned  or  gratuity  given.  Any 
examiner  accepting  a  loan  or  gratuity  from  any  bank 
examined  by  him  or  from  an  officer,  director  or  employee 
thereof  shall  be  deemed  guilty  of  a  misdemeanor  and 
shall  be  imprisoned  not  exceeding  one  year  or  fined  not 
more  than  $5,000,  or  both;  and  may  be  fined  a  further 
sum  equal  to  the  money  so  loaned  or  gratuity  given; 
and  shall  forever  threreafter  be  disqualified  from  hold- 
ing office  as  a  national-bank  examiner.  No  national- 
bank  examiner  shall  perform  any  other  service  for  com- 
pensation while  holding  such  office  for  any  bank  or 
officer,  director,  or  employee  thereof. 


PAGB  Sg 


The  Federal  Reserve  Act 


Other  than  the  usual  salary  or  director's  fee  paid 
to  any  officer,  director,  or  employee  of  a  member  bank 
and  other  than  a  reasonable  fee  paid  by  said  bank  to 
such  officer,  director,  or  employee  for  services  rendered 
to  such  bank,  no  officer,  director,  employee,  or  attorney 
of  a  member  bank  shall  be  a  beneficiary  of  or  receive, 
directly  or  indirectly,  any  fee,  commission,  gift,  or  other 
consideration  for  or  in  connection  with  any  transaction 
or  business  of  the  bank.  No  examiner,  public  or  private, 
shall  disclose  the  names  of  borrowers  or  the  collateral 
for  loans  of  a  member  bank  to  other  than  the  proper 
officers  of  such  bank  without  first  having  obttained  the 
express  permission  in  writing  from  the  Comptroller  of 
the  Currency  or  from  the  board  of  directors  of  such 
bank,  except  when  ordered  to  do  so  by  a  court  of  com- 
petent jurisdiction,  or  by  direction  of  the  Congress  of 
the  United  States,  or  of  either  House  thereof,  or  of  any 
committee  of  Congress  or  of  either  House  duly  author- 
ized. Any  person  violating  any  provision  of  this  section 
shall  be  punished  by  a  fine  of  not  exceeding  $5,000  or  by 
imprisonment  not  exceeding  one  year,  or  both. 

Except  as  provided  in  existing  laws,  this  provision 
shall  not  take  effect  until  sixty  days  after  the  passage 
of  this  Act. 


PAGE  go 


The  Federal  Reserve  Act 


Sec.  23.  The  stockholders  of  every  national  bank- 
ing association  shall  be  held  individually  responsible  for 
all  contracts,  debts  and  engagements  of  such  association, 
each  to  the  amount  of  his  stock  therein,  at  the  par  value 
thereof  in  addition  to  the  amount  invested  in  such  stock. 
The  stockholders  in  any  national  banking  association 
who  shall  have  transferred  their  shares  or  registered  the 
transfer  thereof  within  sixty  days  next  before  the  date 
of  the  failure  of  such  association  to  meet  its  obligations, 
or  with  knowledge  of  such  impending  failure,  shall  be 
liable  to  the  same  extent  as  if  they  had  made  no  such 
transfer,  to  the  extent  that  the  subsequent  transferee 
fails  to  meet  such  liability ;  but  this  provision  shall  not  be 
construed  to  affect  in  any  way  any  recourse  which  such 
shareholders  might  otherwise  have  against  those  in 
whose  names  such  shares  are  registered  at  the  time  of 
such  failure. 

Loans  on  Farm  Lands 

Sec.  24.  Any  national  banking  association  not  sit- 
uated in  a  central  reserve  city  may  make  loans  secured 
by  improved  and  unencumbered  farm  land,  situated 
within  its  Federal  reserve  district,  but  no  such  loan  shall 
be  made  for  a  longer  time  than  five  years,  nor  for  an 
amount  exceeding  fifty  per  centum  of  the  actual  value  of 
the  property  offered  as  security.     Any  such  bank  may 


PAGE  9.1 


The  Federal  Reserve  Act 


make  such  loans  in  an  aggregate  sum  equal  to  twenty- 
five  per  centum  of  its  capital  and  surplus  or  to  one-third 
of  its  time  deposits,  and  such  banks  may  continue  here- 
after as  heretofore  to  receive  time  deposits  and  to  pay 
interest  on  the  same. 

The  Federal  Reserve  Board  shall  have  power  from 
time  to  time  to  add  to  the  list  of  cities  in  which  national 
banks  shall  not  be  permitted  to  make  loans  secured  upon 
real  estate  in  the  manner  described  in  this  section. 

Foreign  Branches 

Sec.  25.  Any  national  banking  association  possess- 
ing a  capital  and  surplus  of  $1,000,000  or  more  may  file 
application  with  the  Federal  Reserve  Board,  upon  such 
conditions  and  under  such  regulations  as  may  be  pre- 
scribed by  the  said  board,  for  the  purpose  of  securing 
authority  to  establish  branches  in  foreign  countries  or 
dependencies  of  the  United  States  for  the  furtherance 
of  the  foreign  commerce  of  the  United  States,  and  to 
act,  if  required  to  do  so,  as  fiscal  agents  of  the  United 
States.  Such  application  shall  specify,  in  addition  to 
the  name  and  capital  of  the  banking  association  filing 
it,  the  place  or  places  where  the  banking  operations  pro- 
posed are  to  be  carried  on,  and  the  amount  of  capital  set 
aside  for  the  conduct  of  its  foreign  business.    The  Fcd- 


P4GE99 


The  Federal  Reserve  Act 


eral  Reserve  Board  shall  have  power  to  approve  or  to 
reject  such  application  if,  in  its  judgment,  the  amount  of 
capital  proposed  to  be  set  aside  for  the  conduct  of  foreign 
business  is  inadequate,  or  if  for  other  reasons  the  grant- 
ing of  such  application  is  deemed  inexpedient. 

Every  national  banking  association  which  shall  re- 
ceive authority  to  establish  foreign  branches  shall  be 
required  at  all  times  to  furnish  information  concerning 
the  condition  of  such  branches  to  the  Comptroller  of  the 
Currency  upon  demand,  and  the  Federal  Reserve  Board 
may  order  special  examinations  of  the  said  foreign 
branches  at  such  time  or  times  as  it  may  deem  best. 
Every  such  national  banking  association  shall  conduct 
the  accounts  of  each  foreign  branch  independently  of 
the  accounts  of  other  foregn  branches  established  by  it 
and  of  its  home  office,  and  shall  at  the  end  of  each  fiscal 
period  transfer  to  its  general  ledger  the  profit  or  loss 
accruing  at  each  branch  as  a  separate  item. 

Sec.  26.  All  provisions  of  law  inconsistent  with 
or  superseded  by  any  of  the  provisions  of  this  Act  are 
to  that  extent  and  to  that  extent  only  hereby  repealed: 
Provided,  Nothing  in  this  Act  contained  shall  be  con- 
strued to  ref>eal  the  parity  provision  or  provisions  con- 
tained in  an  Act  approved  March  fourteenth,  nineteen 
hundred,  entitled  "An  Act  to  define  and  fix  the  standard 


PAGE  93 


The  Federal  Reserve  Act 


of  value,  to  maintain  the  parity  of  all  forms  of  money 
issued  or  coined  by  the  United  States,  to  refund  the 
public  debt,  and  for  other  purposes,"  and  the  Secretary 
of  the  Treasury  may  for  the  purpose  of  maintaining 
such  parity  and  to  strengthen  the  gold  reserve,  borrow 
gold  on  the  security  of  United  States  bonds  authorized 
by  section  two  of  the  Act  last  referred  to  or  for  one- 
year  gold  notes  bearing  interest  at  a  rate  of  not  to  exceed 
three  per  centum  per  annum,  or  sell  the  same  if  necessary 
to  obtain  gold.  When  the  funds  of  the  Treasury  on  hand 
justify,  he  may  purchase  and  retire  such  outstanding 
bonds  and  notes. 

Sec.  27.  The  provisions  of  the  Act  of  May 
thirtieth,  nineteen  hundred  and  eight,  authorizing 
national  currency  associations,  the  issue  of  additional 
national-bank  circulation,  and  creating  a  National  Mone- 
tary Commission,  which  expires  by  limitation  under 
the  terms  of  such  Act  on  the  thirtieth  day  of  June,  nine- 
teen hundred  and  fourteen,  are  hereby  extended  to  June 
thirtieth,  nineteen  hundred  and  fifteen,  and  sections 
fifty-one  hundred  and  fifty-three,  fifty-one  hundred  and 
seventy-two,  fifty-one  hundred  and  ninety-one,  and  fifty- 
two  hundred  and  fourteen  of  the  Revised  Statutes  of 
the  United  States,  which  were  amended  by  the  Act  of 
May  thirtieth,  nineteen  hundred  and  eight,  are  hereby 


PAGE  94 


The  Federal  Reserve  Act 


re-enacted  to  read  as  such  sections  read  prior  to  May 
thirtieth,  nineteen  hundred  and  eight,  subject  to  such 
amendments  or  modifications  as  are  prescribed  in  this 
Act:  Provided,  however,  That  section  nine  of  the  Act 
first  referred  to  in  this  section  is  hereby  amended  so  as 
to  change  the  tax  rates  fixed  in  said  Act  by  making  the 
portion  applicable  thereto  read  as  follows : 

National  banking  associations  having  circulating 
notes  secured  otherwise  than  by  bonds  of  the  United 
States,  shall  pay  for  the  first  three  months  a  tax  at  the 
rate  of  three  per  centum  per  annum  upon  the  average 
amount  of  such  of  their  notes  in  circulation  as  are  based 
upon  the  deposit  of  such  securities,  and  afterwards  an 
additional  tax  rate  of  one-half  of  one  per  centum  per 
annum  for  each  month  until  a  tax  of  six  per  centum  per 
annum  is  reached,  and  thereafter  such  tax  of  six  per 
centum  per  annum  upon  the  average  amount  of  such 
notes. 

Sec.  28.  Section  fifty-one  hundred  and  forty-three 
of  the  Revised  Statutes  is  hereby  amended  and  re-enacted 
to  read  as  follows :  Any  association  formed  under  this 
title  may,  by  the  vote  of  shareholders  owning  two-thirds 
of  its  capital  stock,  reduce  its  capital  to  any  sum  not 
below  the  amount  required  by  this  title  to  authorize  the 
formation  of  associations;  but  no  such  reduction  shall 


PAGE  95 


The  Federal  Reserve  Act 


be  allowable  which  will  reduce  the  capital  of  the  associa- 
tion below  the  amount  required  for  its  outstanding  cir- 
culation, nor  shall  any  reduction  be  made  until  the  amount 
of  the  proposed  reduction  has  been  reported  to  the 
Comptroller  of  the  Currency  and  such  reduction  has  been 
approved  by  the  said  Comptroller  of  the  Currency  and 
by  the  Federal  Reserve  Board,  or  by  the  organization 
committee  pending  the  organization  of  the  Federal  Re- 
serve Board. 

Sec.  29.  If  any  clause,  sentence,  paragraph,  or 
part  of  this  Act  shall  for  any  reason  be  adjudged  by 
any  court  of  competent  jurisdiction  to  be  invalid,  such 
judgment  shall  not  affect,  impair,  or  invalidate  the  re- 
mainder of  this  Act,  but  shall  be  confined  in  its  opera- 
tion to  the  clause,  sentence,  paragraph,  or  part  thereof 
directly  involved  in  the  controversy  in  which  such  judg- 
ment shall  have  been  rendered. 

Sec.  30.  The  right  to  amend,  alter,  or  repeal  this 
Act  is  hereby  expressly  reserved. 


PAGE  96 


Analysis  of  the  Federal  Reserve  Act 


Title 

The  Federal  Reserve  Act. 

1.     Definition  of  "bank,"  "board,"  "district,"  etc. 

Effective 

As  soon  as  practicable. 

Federal  Reserve  Districts 

Organization  Committee  composed  of 

1.  Secretary  of  the  Treasury. 

2.  Secretary  of  Agriculture. 

3.  Comptroller  of  the  Currency. 

Country  to  be  divided  into  not  less  than  8  nor  more 
than  12  districts. 

1.  Country  to  exclude  Alaska. 

2.  Districts   not   necessarily   coterminous   with   a 
state. 

PAGE  97 


Analysis  of  the  Federal  Reserve  Act 

3.  Districts  may  be  readjusted  by  Federal  Reserve 
Board. 

4.  Districts  to  be  designated  by  number. 

5.  Each  district  to  have  a  Federal  Reserve  City  to 
be  designated  by  the  organization  committee. 

6.  Organization  committee  may  employ  assistance. 

Banks  to  become  members. 

1.  All  national  banks  required  to  become  members. 

2.  Must  signify  their  willingness  to  join  within  60 
days. 

3.  Within  30  days  after  receiving  notice  banks 
must  subscribe  6  per  centum  of  their  capital 
and  surplus  to  the  capital  of  the  reserve  banks. 

(a)  One-sixth  to  be  payable  on  call. 

(b)  One-sixth  payable  within  three  months. 

(c)  One-sixth  payable  within  six  months. 

(d)  Remainder  subject  to  call. 

4.  Shareholders  of  Reserve  Bank  to  be  held  re- 
sponsible individually. 

5.  National  banks  failing  to  offer  to  come  in  the 
system  within  60  days  to  cease  to  be  a  reserve 
agent. 

(a)     Thirty  days*  notice  to  be  given. 
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Analysis  of  the  Federal  Reserve  Act 


6.  National  banks  failing  to  join  within  a  year  to 
be  compelled  to  give  up  their  national  charters. 

7 .  If  banks  fail  to  subscribe  sufficient  capital,  stock 
of  reserve  bank  may  be  offered  to  the  public. 

(a)     No  one  other  than  a  bank  may  hold  more 
than  $25,000  stock  in  a  reserve  bank. 

8.  If  not  sufficient  capital  then  raised,  the  United 
States  government  may  subscribe. 


Voting  power  of  stock. 

1.     Stock  held  by  others  than  banks  not  to  have  a 
voting  power. 

(a)     Reserve   Board   to   regulate   the   transfers   of 
this  stock. 


Size  of  banks. 

1.     No  reserve  bank  to  start  with  capital  of  less 
than  $4,000,000. 

// 

'  '   2.     Each  reserve  bank  shall  establish  branches  in 
its  district.  V  ymola>a_W-'  .  •>>&. 

(a)  Regulated  by  Board. 

(b)  Reserve   bank   to    designate    manager    of    a 
branch. 


PAGE  99 


Analysis  of  the  Federal  Reserve  Act 

Federal  Reserve  Banks 

/  Application  for  a  reserve  bank  to  be  filed  with 
■  Comptroller  of  the  Currency 

.     1.     By  at  least  five  banks  in  a  district. 

2.  Organization  certificate  to  be  acknowledged  be- 
fore a  judge,  court  of  record,  or  notary  public. 

3.  Certificates  to  state 

(a)  Name  of  reserve  bank. 

(b)  Limits  of  the  district. 

(c)  Location  of  reserve  bank. 

(d)  Amount  of  capital  stock. 

(e)  Etc. 

Organization  certificate  gives  power 

1.  To  adopt  a  corporate  seal. 

2.  To  have  twenty-year  franchise. 

3.  To  make  contracts. 

4.  To  have  entity  before  law. 

5.  To  appoint  officers  not  enumerated  by  this  act. 

6.  To  prescribe  by-laws. 

7 .  To  exercise  specific  and  incidental  powers. 

PAGE  joo 


Analysis  of  the  Federal  Reserve  Act 


8.  To  deposit  government  bonds  and  receive  circu- 
.  lating  notes  from  the  Comptroller  of  the  Cur- 
\  rency. 

9.  Cannot  exercise  these  powers  until  authorized 
by  Comptroller  of  the  Currency. 


Board  of  directors  of  a  Reserve  Bank 

1.  To  consist  of  three  classes : 

Class  A — Three  members  chosen  by  member  banks. 
Class  B — Three  members  representing  commerce, 

agriculture  and  some  other  pursuit. 
Class  C — Three  members  designated    by    Federal 

Reserve  Board. 

2.  Directors  of  Class  B  and  C  not  to  be  connected 
with  any  bank.  B  directors  may,  however,  be 
shareholders. 

3.  No  member  of  Congress  may  be  member  of 
Reserve  Board,  or  director  or  officer  of  a  re- 
serve bank. 

4.  Class  A  and  B  directors  elected  by  bank  elec- 
tors, each  member  bank  having  one  vote. 

5.  Chairman  of  board  of  directors,  (Federal  Re- 
serve Agent)  one  of  Class  C,  to  have  tested 
banking  experience. 

6.  One  director  of  each  class  to  retire  each  year — 
thereafter  term  of  office  is  three  years. 


FACE  joi 


Analysis  of  the  Federal  Reserve  Act 

7.  Method  of  selecting  directors  of  Class  A  and  B 
prescribed. 

8.  Specific  qualifications  required  of  Class  C  di- 
rector. 

9.  Chairman  to  be  "Federal  reserve  agent." 

10.  Chairman  to  have  tested  banking  experience. 

11.  Deputy     chairman — from     Class     C — to    have 
tested  banking  experience. 

12.  Expenses  to  be  paid  by  reserve  banks. 

Stock  issues ;  increase  of  capital. 

/'l.     Shares,  $100. 

2.  Stock  increased  as  member  banks  increase  or 
grow. 

3.  Shares  held  by  member  banks  not  to  be  trans- 
ferred or  hypothecated. 

4.  New  shares  and  shares  surrendered  after  or- 
ganization to  be  paid  at  par  plus  dividend. 

J  5.  Failed  and  liquidated  banks  and  capital  de- 
creases of  member  banks  corresponds  to  in- 
crease and  decrease  in  reserve  bank  capital. 

/  Division  of  earnings. 

^         1.     Stockholders  to  receive  6  per  cent,  cumulative 
X  dividend. 

\.  (a)     First  excepting  expenses  of  reserve  banks. 


PAGE  102 


Analysis  of  the  Federal  Reserve  Act 


2.  Remainder  to  go  to  Government. 

(a)     One-half  of  earnings  remaining  after  the  pay- 
,  ment  of  these  obligations  to  create  a  surplus 
fund.     Until   surplus   equals   40  per   cent   of 
capital  of  a  reserve  bank. 

3.  Secretary  of  Treasury  may  use  net  earnings  to 
the  government  to  add  to  gold  reserve  or  to  be 
used  in  liquidating  the  bonded  debt. 

4.  Reserve  banks  exempt  from  taxation,  except  on 
real  estate. 


State  banks 

1.  May  become  national  banks. 

(a)  By  compliance  with  national  banking  law. 

(b)  When  not  in  contravention  of  state  law. 

2.  State  banks  and  trust  companies  may  become 
members  and  retain  state  charters  by  applying 
to  Federal  Reserve  Board  for  membership  in 
the  system. 

(a)     Must  conforrn  to  reserve  and  capital  require- 
ments of  national  banks. 

(b)     Must  conform  to  national  law  on  limitation  of 
liability. 

(c)  Must  make   reports  to   Comptroller. 

(d)  Federal  Reserve  Board  may  suspend,  cancel 
or  restore  a  state  institution  to  membership. 


PAGE  103 


Analysis  of  the  Federal  Reserve  Act 

Federal  Reserve  Board 

To  consist  of  seven  members: 

1.  Secretary  of  the  Treasury. 

2.  Comptroller  of  the  Currency. 

3.  Five  others  appointed  by  President  with  con- 
sent of  the  Senate. 

(a)  These    to   represent   the    country   geographi- 
cally, commercially  and  industrially. 

(b)  The  five  to  devote  entire  time  to  their  duties 
and  receive  salary  of  $12,000  per  annum. 

(c)  Comptroller  to  receive  $7,000,  in  addition  to 
his  present  salary. 

4.  Secretary    and    Assistant    Secretaries    of    the 

Treasury,  Comptroller  and  members  of  Board 
not  permitted  to  take  office  with  a  member 
bank  during  term  of  office  or  for  two  years 
after  retiring. 

5.  At  least  two  members  must  be  experienced  in 
banking. 

6.  One  member  to  retire  each  second  year,  there- 
after term  is  10  years. 

7.  One  of  the  five  appointees  to  be  designated  by 
President  as  governor  of  the  board. 

Board  to  levy  semi-annually  upon  reserve  banks 
assessment  to  pay  expenses  and  salaries  of  board. 

PAGE  104 


Analysis  of  the  Federal  Reserve  Act 

Offices  to  be  in  Treasury  Department,  Washington, 
D.  C. 

No  member  of  board  may  be  connected  with  any 
bank. 

President  may  fill  vacancies  during  recess  of  Con- 
gress. 

Powers  of  Secretary  of  Treasury  not  curtailed. 

Federal  Reserve  Board  to  report  to  the  Speaker  of 
the  House  of  Representatives  annually. 

Federal  Reserve  Board  has  the  following  powers: 

1.  To  examine  Federal  Banks  and  publish  weekly 
statement. 

2.  To  permit  or  require  one  reserve  bank  to  redis- 
count for  another  reserve  bank. 

3.  To  suspend  for  not  over  30  days  the  reserve 
requirements. 

(a)     A  graduated  tax  to  apply  when  reserves  fall 
below  40  per  cent. 

4.  To  supervise  the  issue  and  retirement  of  reserve 
notes. 


PAGE  105 


Analysis  of  the  Federal  Reserve  Act 


5.  To  add  to  number  of  reserve  and  central  reserve 
cities. 

6.  To  suspend  or  remove  any  officer  or  director  of 
a  reserve  bank. 

7.  To  require  writing  off  of  worthless  assets  of  a 
reserve  bank. 

8.  To  suspend,  for  cause,  and  operate  a  reserve 
bank. 

9.  To  require  bonds  of  reserve  agents. 

10.  To  exercise  general  supervision  over  reserve 
banks. 

11.  To  permit  national  banks  to  act  as  trustee, 
executor,  administrator,  or  registrar  of  stocks 
and  bonds. 

12.  To  employ  necessary  assistants,  etc. 

(a)     Without  civil  service  act. 


Federal  Advisory  Council,  an  adjunct  to  the  Board. 

1.  One  member  selected  by  each  reserve  bank. 

2.  Salary  to  be  fixed  by  reserve  bank. 

3.  Council  to  meet  in  Washington,  D.  C,  at  least 
four  times  a  year. 

4.  Meetings  oftener  when  called  by  the  Board. 
PAGE  io6 


Analysis  of  the  Federal  Reserve  Act 


5.     Council  has  the  power: 

(a)  To  confer  with   Board  on  general  business 
conditions. 

(b)  To  make  representations  concerning  matters 
under  the  jurisdiction  of  the  Board. 

(c)  To  make  recommendations  regarding  discount 
rates,  and  other  operations  of  reserve  banks. 


Operations  of  Federal  Reserve  Banks 

Reserve  banks  are  granted  the  power 

1.  To  receive  deposits  from  member  banks. 

2.  To  receive  deposits  from  the  United  States. 

3.  To  receive  deposits  from  other  reserve  banks. 

4.  To  discount  notes  of  member  banks  growing 
out  of  commercial  transactions. 


^ 


5.  To  discount  acceptances  indorsed  by  a  member 
bank. 

(a)  Amount  of  acceptances  not  to  exceed  one-half 
of  capital  of  member  bank. 

(b)  Amount  of  notes  of  one  person  not  to  exceed 
10  per  cent,  of  capital  and  surplus  of  member 
bank. 

(c)  Amount  of  commercial  notes  not  to  exceed 
one-half  paid-up  capital  and  surplus  of  mem- 
ber bank, 

6.  Liability  of  member  banks  restricted. 

PAGE  I07 


Analysis  of  the  Federal  Reserve  Act 


7.     Board  may  regulate  discount  operations  of  a 
reserve  bank. 


Open-market  operations. 

1.     Reserve  bank  may  purchase  and  sell  in  open 
market. 

(a)  Cable  transfers. 

(b)  Bankers'  acceptances. 

(c)  Bills  of  exchange. 

2.     A  reserve  bank  has  power 

(a)  To  deal  in  gold  coin  and  bullion. 

(b)  Buy  and  sell  bonds  and  notes  of  certain  kinds. 

(c)  Purchase  and  sell  bills  of  exchange. 

(d)  Establish  rates  of  discount. 

(e)  Establish    exchange    accounts   at   home   and 
abroad. 


Government  deposits. 

1.  Secretary  of  Treasury  may  deposit  public  funds 
with  reserve  banks,  and  use  reserve  banks  as 
fiscal  agents. 

(a)  Excepting  five  per  cent,  redemption  fund. 

(b)  National  banks  may  still  be  government  de- 
positories. 


PAGE  io8 


Analysis  of  the  Federal  Reserve  Act 

Note  issues. 

1.  Board  to  issue  reserve  notes  to  reserve  banks. 

(a)  Notes  to  be  obligations  of  government. 

(b)  Redeemable  in  gold  at  Treasury. 

(c)  Redeemable  in  gold  or  lawful  money  at  re- 
serve bank. 

2.  Reserve  banks  to  receive  these  notes  upon  filing 
notes  and  bills  accepted  for  rediscount. 

(a)     Board  may  call  upon  reserve  bank  for  addi- 
tional security. 

3.  Reserve  bank  to  maintain  reserve  in  gold  or 
lawful  money  of  35  per  cent  of  deposits. 

(a)     Gold  reserve  against  notes  in  circulation  must 
be  40  per  cent. 

4.  Reserve  bank  taxed  10  per  cent  on  notes  it  is- 
sues of  any  other  reserve  bank. 

5.  Reserve  bank  to  deposit  with  Treasury  a  re- 
demption fund  of  at  least  5  per  cent. 

6.  Reserve  bank  may  reduce  outstanding  liabilities 
by  depositing  with  Treasury  notes,  gold,  certifi- 
cates, or  lawful  money. 

7.  Reserve  agent  to  hold  gold,  certificates  or  law- 
ful money  for  exchange  for  reserve  notes. 

8.  Reserve  bank  may  substitute  collateral  held  by 
agent. 


PAGE  109 


Analysis  of  the  Federal  Reserve  Act 

9.  Comptroller  to  have  dies  prepared  for  engrav- 
ing reserve  notes. 

(a)     Reserve  banks  to  bear  expense  of  engraving. 

10.  Reserve  banks  to  clear  checks 

(a)  Received  at  par  from  members. 

(b)  At  par  from  other  reserve  banks. 

(c)  Board  to  regulate  charges  exacted  of  mem- 
ber banks  for  clearing  checks. 

(d)  Board  to  regulate  transfer  of  funds. 

11.  New  national  banks  not  to  issue  circulation 
based  on  bonds. 

Government  bonds  to  be  refunded. 

1.  After  two  years  from  passage  of  this  act  and  for 
twenty  years  thereafter  a  bank  may  retire  its 
notes  and  sell  its  bonds  held  as  security. 

2.  Applications  for  this  to  be  filed  with  U.  S. 
Treasurer. 

3.  Retiring  bonds  to  be  purchased  by  Federal  Re- 
serve Banks. 

(a)  Bonds  purchased  in  any  one  year  not  to  ex- 
ceed $25,000,000. 

(b)  Reserve  bank  purchasing  the  bonds  may  issue 
circulating  notes  equal  to  par  value  of  the 
bonds. 

(c)  These  circulating  notes  to  be  obligations  of 
reserve   banks. 


PAGE  no 


Analysis  of  the  Federal  Reserve  Act 


4.  Government  may  issue  in  exchange  for  out- 
standing 2  per  cent  bonds,  against  which  no 
circulation  is  outstanding. 

(a)  One-year  3  per  cent  treasury  gold  notes,  50 
per   cent  interest. 

(b)  Thirty-year  3  per  cent  bonds,  50  per  cent. 

Requirements  of  Banks 

Country  banks  should  hold  reserves 

1.     Of^iSTpcr  cent  on  demand  deposits. 
"^^^2.     Of /Sfper  cent  on  time  deposits. 

3.     This  reserve  to  be  segregated  as  follows: 

(a)     In  vaults  (Compulsory): 

12  months  5-12 

18  months  S-12 

24  months  5-12 

30  months  5-12 

36  months  5-12 

Thereafter 4-12 

In  Federal  Reserve  Bank  (Compulsory): 

12  months  2-12 

18  months  3-12 

24  months  4-12 

30  months  5-12 

36  months  5-12 

Thereafter 5-12 


PAGE  III 


Analysis  of  the  Federal  Reserve  Act 


(b)  The  remainder  to  be  held  for  the  first  36 
months  in  either  the  vaults,  reserve  banks  or 
in  national  banks  in  reserve  cities  or  central 
reserve  cities. 

(c)  Thereafter  it  may  be  held  in  vaults  or  in  re- 
reserve  banks. 


Reserve  city  banks  shall  hold  reserves 

1.     Of  K-per  cent,  on  demand  deposits. 

2.  Of  \  per  cent  on  time  deposits. 

3.  This  reserve  to  be  segregated  as  follows: 

(a)     In  vaults  (Compulsory): 

12  months  6-15 

18  months  6-15 

24  months 6-15 

30  months  6-15 

36  months  6-15 

Thereafter 5-15 

In  Federal  Reserve  Banks  (Compulsory): 

12  months  3-15 

18  months  4-15 

24  months  5-15 

30  months  6-15 

36  months  6-15 

Thereafter  6-15 


(b)  The  remainder  to  be  held  for  the  first  36 
months  in  either  vault,  reserve  banks  or  in 
banks  in  reserve  or  central  reserve  cities. 


PAGE  112 


Analysis  of  the  Federal  Reserve  Act 

(c)     Thereafter   it   may   be   held   in   vaults   or   in 
reserve  banks. 


Central  reseryp  city  banks  shall  hold  reserves 

1.  Of  i8«per  cent  on  demand  deposits. 

2.  Of^St-per  cent  on  time  deposits. 

3.  This  reserve  to  be  segregated  as  follows: 

(a)  In  vaults  (compulsory),  6-18  thereof. 

(b)  In  reserve  banks  (compulsory),  7-18  thereof. 

(c)  Remainder  in  either  own  vaults  or  in  reserve 
bank. 


Reserves  of  state  banks  held  in  state  banks  to  be 
considered  as  being  held  by  reserve  or  central  re- 
serve city  national  banks. 

1.  A  member  bank  could  not  rediscount  with  a 
Reserve  association  any  paper  endorsed  by  non- 
member  bank  except  by  permission  of  Federal 
Board. 

Reserves  in  reserve  banks  may  be  checked  against. 

Banks  in  Alaska  or  outside  the  continental  United 
States  not  required  to  come  into  the  system. 

PAGE  113 


Analysis  of  the  Federal  Reserve  Act 


Bank  examinations. 

1.  Comptroller  of  the  currency  to  authorize  bank 
examinations. 

2.  Board  to  fix  salaries  of  bank  examiners. 

3.  A  reserve  bank  may  authorize  the  examination 
of  a  member  bank  within  its  district. 

4.  Board  to  order  examination  of  Reserve  Banks 
at  least  once  a  year. 

No  loan  or  gratuity  may  be  extended  an  examiner 
by  a  bank. 

No  extra  fee,  etc.,  may  be  paid  an  officer  or  em- 
ployee of  a  bank. 

1.     Effective  60  days  after  passage  of  this  act. 

Stockholders  of  banks  are  individually  responsible. 

/  Any  country  or  reserve  city  bank  may  make  farm 
loans. 

1.  Such  loans  may  not  be  made  by  central  reserve 
city  banks. 

2.  Cannot  be  made  for  a  time  longer  than  5  years. 

3.  Not  to  exceed  50  per  cent  of  the  value  of  the 
land. 


PAGE  114 


I 


Analysis  of  the  Federal  Reserve  Act 

4.  Such  loans  not  to  exceed  25  per  cent  of  a  bank's 
capital  and  surplus  or  one-third  of  its  time  de- 
posits. 

5.  Board  may  add  to  list  of  cities  within  which  the 
banks  may  not  loan  on  farm  lands. 

Foreign  branches 

1.  May  be  established  by  a  member  bank  with 
capital  exceeding  $1,000,000  upon  application 
to  the  Board. 

2.  Branches  under  regulation  of  the  Board. 

3.  Reports  of  branches  to  be  filed  with  Comptrol- 
ler. 

Accounts  of  branches  to  be  separate. 

Nothing  in  this  act  to  repeal  the  gold  standard  act. 

Aldrich-Vreeland  emergency  currency  act  extended 
until  June  30,  1915. 

1.     This  act  amended  by  reducing  tax  rate. 

Miscellaneous 

National  banks  permitted  to  reduce  their  capital. 

If  a  court  holds  one  section  of  this  act  unconstitu- 
tional, that  shall  not  impair  the  remainder  of  the 
act. 

Right  to  amend,  alter  or  repeal  is  reserved. 

PAGE  lis 


INDEX 


History   

Complete  Text  of  Law 

Digest  of  Federal  Reserve  Act> 


Pagre 

.-  5 
.-  27 
^97 


INDEX   OF  ACT 


Pace  Sect. 


Application 

For  Membership  Federal  Reserve  Bank- 


B. 


Bank 

Definition 

Bank  Examinations 

See  Examinations. 
Bank  Reserves 

See  Reserve. 
Board 

Definition  


Federal  Reserve. 
Branch  Banks 

How  established.. 


(See  Federal  Reserve  Board.) 


Managed  by  Board  of  Directors.. 

How  Selected. 

Manager  of- 


Branch  Offices 

See  Branch  Banks. 


Demand  Deposits 

Definition  

Directors 


D. 


of  Federal  Reserve  Banks.. 

of  Branch  Banks 

of  Member  banks, 
prohibited  


fees  or  commissions  for  loans 


27 


27 


27 


88 

84 
34 
34 


81 

38 
34 

89 


19 

4 
3 

22 


PAGE  Uf 


The  Federal  Reserve  Act 


INDEX 


Penalty  for 

Dissolution 

of  Member  Banks  effect. 

District 

Definition  

Division  of  Earnings 
See  Earnings. 


Earnings 

of  Federal  Reserve  Banks. 

How  distributed 

Dividends  to  Stockholders. 

U.  S.  franchise  tax 

Surplus  fund 


U.  S.  Earnings,  how  applied. 


Emergency  Currency 

Limitations  of,  Act  of  May  30,  1908,  extended  to 
June  30,   191S 

Examinations 

of  Member  Banks 

Periodical 


Special  examinations  by  order  of  Federal  Reserve 
Board 


By  Federal  Reserve  Banks. 

Expenses  of,  how  paid 

Other  visitorial  powers 


Examiners 

How  appointed. 
Salaries  


Not  to  receive  gratuities  from  banks  examinee 
Penalty  for. 


Not  to  perform  other  services  for  banks  examined — 


Pace     Sect 


80 
27 


46 
46 
47 

47 
47 


94 

87 

87 

87 
88 
87 
88 

87 
87 
89 
89 


PAGE  118 


The  Federal  Reserve  Act 


INDEX 


Page 


F. 

Farm  Lands 

See  Loans  on  Farm  Lands. 

Federal  Advisory  Council 

How  appointed — 

Meetings 

Powers   


Federal  Reserve  Agent 
S'alary 


Deputy 


Federal  Reserve  Banks 

Organized  by  Reserve    Bank    Organization    Com- 
mittee   

Name  o  f 

National    Banks    to    signify    intention    to    become 
members   


Subscription   of   member   banks 
surplus 


6%   of   capital   & 


Stock  (see  stock) 

Payments,  how  made- 
How  organized. 

Powers    


Directors,  how  elected. 


Class  A  by  Member  Banks- 


Class  B  by  Member  Banks 

Class  C  by  Federal  Reserve  Board. 
No  senator  or  congressman  eligible.. 
Electors  selected  from  groups™. 

Preferential   ballot 

Directors,  salaries  &  expenses 

Decrease  and  increase  of  stoclc 


May  be  Government  depositaries  and  required  to 

act  as  fiscal  agents 

To  receive  checks  at  par- 


Required  to  purchase  2%  Government  bonds  at  par 
after  two  years ,  


61 
61 
62 

42 
42 

42 


27 
29 

29 

29 
44 
29 
34 
36 
38 
39 
89 
39 
39 
40 
41 
4S 
44 

68 
68 

77 


PAGB  119 


The  Federal  Reserve  Act 


INDEX 


Page  Sect. 


Limitations  of  purchase- 


May  issue  notes  against  bonds  purchased 

May  exchange  2%  bonds  purchased  for  3%  bonds 
Must  re-purchase  one-year  bonds  from  year  to  year 

Federal  Reserve  Board 

How  appointed 

Secretary  of    the   Treasury,    Comptroller 
Currency,  members  ex-officio 

Terms  of  office 


of    the 


Expenses,  how  paid. 
First  meeting- 


Members  ineligible  to  serve  as  Directors  or  officers 
of  member  banks  for  two  years  after  retirement. 

Vacancies,  how  filled 

Powers  in  conflict  with  those  of  the  Secretary  of 
the   Treasury, 


To  supervise  issue  of  Federal  Reserve  Notes. 
General  powers 


Power  to  fix  rules  governing  exchange  charges 

To  act  as  clearing  house  for  Federal  Reserve  Banks 

Federal  Reserve  Cities 

Number 


Designated  by- 
How    determined 

Subject  to  review  by.. 


Federal  Reserve  Districts 
Number 


Designated  by  number- 
How   changed- 
Reviewed   by- 


Federal  Reserve  Notes 
How   issued 


Term  and  effect- 


Reserve  against,  held  by  banks.. 


77 
78 
79 
80 

53 

53 
53 
54 
54 
65 

63 

55 

56 
66 
57 
76 
76 

28 
28 
28 
28 

28 
28 
28 
28 

68 
68 
70 


PAGE  12Q 


The  Federal  Reserve  Act 


INDEX 


Redemption   of 

Withdrawal  of  collateral  security  for, 

How  printed 

Where    deposited 

Denominations 


Delivered  to  Federal  Reserve  Agent. 
Appropriation  for. 


Expenses  of  issue,  how  paid. 
Foreign  Branches 

National  banks  may  establish  when. 


Regulations  to  be  prescribed  by  Federal  Reserve 
Board  


May  be  required  to  act  as  fiscal  agents  of  United 
States 


G. 

Gold  Reserve 

Secretary  to  maintain 

Government   Deposits 

May  be  made  with  Federal  Reserve  Banks- 
With   Member  Banks 


Inconsistent  Laws  Repealed 


Loans  on  Farm  Lands 

Member  banks  not  in  reserve  cities  may  make- 
Federal  Reserve  Board  may  extend  list 

Amount  and  time  of  such  loans 


National  Bank 

Definition  

Limitation  of 


N. 


liabilities  extended 
due  Federal  Reserve  Banks 


to  include  debts 


Need  not  deposit  U.  S.  Government  bonds  before 
commencing  business -— .-.-«_«^ 


Pate 


71 
78 
73 
74 
78 
72 
76 
74 

92 

92 

92 


98 

68 
68 

98 


91 
92 
91 


P4GB  m 


The  Federal  Reserve  Act 


INDEX 


Pase 


Reduction  of  Capital  Stock,  how  affected.. 

Note  Issue 

See  Federal  Reserve  Notes 


Organization  Committee 

See  Reserve  Bank  Organization  Committee. 

P. 

Penalty 

For  failure  to  signify  acceptance  of  provisions  of 
this  act 


For  violating  provisions- 


For  violating  provisions  by  State  Bank  Members. 

R. 
Reserve  Bank 

Definition 

Reserve  Bank  Organization  Committee 

Composed  of 

Powers 


S. 
State  Banks 

Converted  to  National  Banks. 


May  become  Members  as  State  Banks. 
Conditions  of  membership- 
Regulations 


Must  be  eligible  to  conversion  as  National  Banks — 

Penalty  for  violation  of  provisions 

Reserve    required 

Stock 

Member    banks 


Public  stock. 
Non-Voting 
U.  S.  Stocks 


How  Public  and  U.  S.  stock  transferred. 


Minimum  Capital  for  any  Federal  Reserve  Bank — 


95 


80 
80 
52 


27 

27 
28 


48 
49 
49 
49 
50 
51 
84 

81 
82 
38 
82 
33 
88 


PAGE  IM 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
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AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED   FOR  FAILURE  TO   RETURN 

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WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
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OVERDUE.  


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